S.No Chapter name Pg.

No
1 Investment Decisions 1-10
2 ERP 11-15
3 Leasing Decisions 16-17
4 Securitization 18-19
5 Security Valuation 20-27
6 Security Analysis 28-34
7 Portfolio Management 35-50
8 Mutual Funds 51-58
19 Derivatives 59-71
10 Forex 72-84
11 IFM 85-85
12 IRRM 86-86
13 Digital Finance 87-88
1. Annual Cost Saving ₹4,00,000; Useful life 4 years; Cost of the Project ₹11,42,000.
The Payback period would be-
a) 2 years 8 months
b) 2 years 11 months
c) 3 years
d) 1 year 10 months
2. A project has a 10% discounted pay back of 2 years with annual after tax cash
inflows commencing from year end 2 to 4 of ₹400 lacs. How much would have
been the initial cash outlay which was fully made at the beginning of year 1?
a) ₹400 lacs
b) ₹452 lacs
c) ₹633.80 lacs
d) ₹497.20 lacs
3. The required rate of return on equity is 24% and cost of debt is 12%. The company
has a capital structure mix of 80% of equity and 20% debt. What is the overall
rate of return, the company should earn? Assume no tax.
a) 21.6%
b) 14.4%
c) 18.6%
d) 17.22%
4. Initial Investment ₹20 lakh. Expected annual cash flows ₹6 lakh for 10 years. Cost
of capital @ 15%. What is the Profitability Index? The cumulative discounting
factor @ 15% for 10 years = 5.019.
a) 1.51
b) 1.15
c) 5.15
d) 0.151
5. Given for a project:
Annual Cash inflow = ₹80,000, Useful life = 4 years Undiscounted Pay-Back period
= 2.855 years What is the cost of the project?
a) ₹1,12,084
b) ₹2,28,400
c) ₹9,13,600
d) None of the above
6. Z Ltd. invests ₹20 lacs in a project with life 5 years and no salvage value. Tax
rate is 50% and straight line depreciation is used. The uniform expected cash flows
after tax and before depreciation shield are:
Year end 1 2 3 4 5
Cash flows after tax (₹ lacs) 4 5 6 6 7

1
 The payback period is
a) 3 years
b) 3 years and 11 months
c) 2 years and 11 months
d) 2 years and 6 months
7. A project of ZOBM Ltd. requires an initial investment of ₹ 100 lakh and generates
annual cash inflows of ₹ 29.85 lakh for five years. If the risk-free rate of discount
is 10% and the premium for the normal risk of the Company is 3%, what is the
maximum premium for abnormal risk that can be earned on this project (using IRR
method)?
[Given: PVIFA (13% 5 yrs.) = 3.52, PVIFA (14%, 5 yrs.) = 3.43 and PVIFA (15%,
5 yrs.) = 3.35]
a) 0%
b) 2%
c) 4%
d) None of (A), (B) and (C)
8. A project of ROBN Ltd. has a net present value (base case NPV) of ₹ 1,50,000.
This project has one financial side effect; it expands the firm’s borrowing power
by ₹ 5,00.000. The project lasts indefinitely so it is treated as supporting perpetual
debt. If the borrowing rate is per cent and the net tax-shield is 35 percent, the
adjusted net present value (ANPV) o0f the project will be
a) ₹ 3,25,000
b) ₹ 3,10,000
c) ₹ 2,88,000
d) None of the above.
9. RTZ Ltd. wishes to earn real rate of 10% from its project: When the inflation
recorded is 70%, what is the normal rate the company would earn?
a) 16.60%
b) 17.70%
c) 18.20%
d) None of the above
10.ZOTSON Plc. Ha been evaluating investment in a project which will require ₹ 39
lakh capital expenditure on a new machinery. The company expects the capital
investment to provide annual cash flows of ₹ 6 lakh per year after taxes indefinitely.
The discount rate, which it applies to invest decisions of this nature, is 14 per cent
net. What will be the Base case NPV for ZOTSON Plc.’s project? (Calculation upto
two decimal points.)
a) ₹ 4.00 lakh
b) ₹ 3.86 lakh

2
 c) ₹ 3.56 lakh
d) ₹ 3.25 lakh
11.NOBOB Ltd., has been evaluating investment in a project which will require ₹ 40
lakh capital expenditure on a new machinery. The company expects the capital
investment to provide annual cash flows of ₹ 9 lakh per year after taxes indefinitely.
The business risk of the investment decision requires a 15 percent discount rate.
The base case NPV for NOBON Ltd’s project will be
a) ₹25 lakh
b) ₹20 lakh
c) ₹ 18.50 lakh
d) None of the above
12.A project of Axon Ltd. requires ₹ 30 lakh capital investment and expects perpetual
annual cash inflow after taxes of ₹ 8 lakh. The business risk of the venture requires
a 20 percent discount rate. However, as the project is considered socially desirable
it qualifies for an immediate tax-free government grant of ₹ 10 lakh. What will be
the adjusted net present value (ANPV) of the project?
a) ₹ 25 lakh
b) ₹ 20 lakh
c) ₹ 15 lakh
d) Insufficient information
13.The initial outlay for a equipment of RAGIN Ltd is ₹ 10,00,000. It is estimated
that this will generate cash in flows of ₹ 3,40,000 per annum for 4 years. The
Vost of Capital of the company is 5 per cent. (Ignore taxes).
By how much can the annual cash flows change before the company becomes
indifferent to the project?
[Given: PVIFA (5%, 4 years) = 3.546]
[Present calculate to nearest rupees]
a) ₹ 57,992
b) ₹ 60,125
c) ₹ 61,310
d) None of the above
14.A Project has a Net Present Value (base Case NPV) of 1,20,000. However, this
project has one financial side effects; it expands the firm's borrowing power by
4,80,000. The project lasts indefinitely so it is treated as supporting perpetual
debt. If the borrowing rate is 15 per cent and the net tax shield is 35 per cent,
what will be the Adjusted Net Present Value (ANPV) of the project?
a) ₹2,90,000
b) ₹2,88,000
c) ₹2,40,000

3
 d) None of the above
15.A project is expected to yield an after-tax cash inflow at the end of year 2 of ₹
150 lacs and has a cost of capital of 10%. Inflation is expected at 3% p.a. While
computing the NPV of t the project, this cash flow will be taken as the following:
150

a) 1.03
(1.1)2
150
(1.03)2
b) (1.1)2
150
c) (111.33%)2
150(1.03)2
d) (1.11)2
16.A company has ₹ 7 crore available for investment. It has evaluated its options and
has found that only four investment projects given below have positive NPV. All
these investments are divisible and get proportional NPVs.
Project Initial Investment (₹ crore) NPV (₹ crore) PI
W 6.00 1.80 1.30
X 3.00 0.60 1.20
Y 2.00 0.50 1.25
Z 2.50 1.50 1.60
Which investment projects should be selected?
a) Project W in full and X in part
b) Project Z in full and W in part
c) Project W in full and Z in part
d) Project Z and Y in full and X in part
17.Duhita Ltd. intends to buy an equipment. Quotes are obtained for two different
makes A and B as given below:
Cost (₹ Million) Estimate life (years)
A 4.5 10
B 6.00 15
Ignoring the operations and maintenance costs which will be almost the same for A
and B, which one would be chapter? The company's cost of capital is 10%
[Given: PVIFA (10%, 10 yrs.) = 6.1446 and PVIFA (10%, 15 years) = 7.6061]
a) A will be cheaper
b) B will be cheaper
c) Cost will be the same
d) They are not comparable and therefore nothing can be said about which is cheaper.
18.Initial investment of a project is Rs. 25 lakh. Expected annual cash flows are Rs.
6.5 lakh for 10 years Cost of capital is 15%. The annuity factor for 15% for 10
years is 5.019. The Profitability Index of the project will be
a) 1.305

4
 b) 3.846
c) 0.26
d) 0.7663
19.Z Ltd. invests ₹ 20 lacs in a project with life 5 years and no salvage value. Tax
rate is 50% and straight line depreciation is used. The uniform expected cash flows
after tax and before depreciation shield are:
Year end 1 2 3 4 5
Cash flows after tax (₹ lacs) 4 5 6 6 7
The payback period is
a) 3 years
b) 3 years and 11 months
c) 2 years and 11 months
d) 2 years and 6 months
20.A project has a 10% discounted pay back of 2 years with annual after tax cash
inflows commencing from year end 2 to 4 of ₹400 lakhs. How much would have been
the total project cash outlay which was made in two installments equally at the
beginning and end of year 1?
a) ₹381.81 lakhs
b) ₹347.11 lakhs
c) ₹346.15 lakhs
d) ₹330.58 lakhs
21.The following information is available in case of an investment proposal:
NPV at discounting rate of 10% = ₹ 1250 and NPV at discounting rate of 11% = ₹
(-) 200. The IRR of the proposal is
a) 11.86%
b) 10.86%
c) 9.87%
d) 11.96%
22.The Profitability Index of a project is 1.28 and its cost of investment is ₹
2,50,000. The NPV of the project is ____________
a) ₹ 75,000
b) ₹ 80,000
c) ₹ 70,000
d) ₹ 65,000
23.From the following information calculate the MIRR of the project.
Initial Outlay ₹50,000, cost of capital 12% p.a., Life of the project 4 years,
Aggregate future value of cash flows ₹1,04,896.50.
a) 20.35%
b) 21.53%

5
 c) 31.25%
d) 12.25%
24.he IRR of a project is 10%. If the annual cash flow after tax is ₹1,30,000 and
project duration is 4 years, what is the initial investment in the project?
a) ₹ 4,10,000
b) ₹ 4,12,100
c) ₹ 3,90,000
d) ₹ 4,05,000
25.The NPV of a 4-year project is ₹ 220 lakh and PVIFA at 12% for 4 years is 3.037.
The Equivalent Annual Benefit of the project is
a) ₹ 66.52 lakh
b) ₹ 94.74lakh
c) ₹ 66.96 lakh
d) ₹ 76.65 lakh
26.The following is true in a capital budgeting exercise with discounted cash flow
technique:
a) When there is capital rationing, Net Present Value is better than the Internal Rate
of Return.
b) The Net Present Value highlights the significant minus cash flows occurring between
the inflows when the incomes are being generated more than the Internal Rate of
Return.
c) When there are mutually exclusive proposals of different scales, the Internal Rate
of Return is better than the NPV.
d) The internal rate of return assumes that the cash flows are reinvested at the
required rate of return.
27.The following is not a disadvantage of pay-back period as an evaluation measure for
selecting a project:
a) Before the pay- back period, the mix of cash flows can be rearranged to get the
same result
b) It does not consider the magnitude of cash flows after the payback period.
c) It can give a conflicting decision compared to the net present value method
d) A company that is cash-poor gauges the early recovery of funds invested.
28.Which of the following statements is/are true?
a) NPV is not useful for evaluating mutually exclusive projects.
b) The result of the NPV technique is not effected by the discount rate used.
c) Benefit-cost ratio helps in evaluating the projects which differ in initial outlays.
d) The advantage of NPV criteria is that it remains the same for all possible
reinvestment rates of intermediate cash flows.
29.Terminal value of the projects’ cash inflows means

6
 a) The sum of the future cash flows after a particular period of time
b) The present value of the projects’ future cash inflows
c) The sum of the reinvested values of the cash inflows up to the end of the project
life
d) The sum of the reinvested values of the cash inflows up to the end of the project
life minus initial outlay
30.Which of the following statements is/are true?
a) If BCR takes a value of one, it means that the NPV is positive.
b) While BCR is a ratio of present value of benefits to initial investment, the
profitability index is the ratio of net present value to initial investment.
c) While BCR can take negative values, NBCR cannot take negative values.
d) BCR criteria is used to rank the projects in the order of decreasingly efficient use
of capital when the capital budget is limited.
31.IRR can be viewed as
a) Desired rate of return for the investment proposed
b) Rate of return earned on the initial investment
c) The discount rate at which the capital is procured
d) Rate of return earned on the intermediate cash flows of the project
32.Which of the following techniques is the most suitable, when NPV and IRR lead to
inconsistent ranking due to life disparity between two or more projects?
a) Modified Net Present Value.
b) Modified Internal Rate of Return.
c) Uniform Annual Equivalent Cost/Benefit.
d) Discounted Payback Period.

ANSWERS

1 B 11 B 21 B 31 B
2 B 12 B 22 C 32 C
3 A 13 A 23 A
4 A 14 B 24 B
5 B 15 B 25 A
6 C 16 B 26 A
7 B 17 A 27 D
8 A 18 A 28 C
9 D 19 C 29 C
10 B 20 C 30 D

7
1. P an Q are two mutually exclusive projects. P has a higher initial fixed cost and will
make a profit of ₹ 10,000 for a high ale s volume and a loss of ₹ 4,000 for a low
sales volume. For Q the corresponding amounts would be a profit of ₹ 7,000 or a
profit of ₹2,000. The probability of high sales volume is 60%. The expected value
of perfect information is
a) ₹ 9,000
b) ₹ 6,800
c) ₹ 12,600
d) ₹ 10,200
2. The project-Z of ZINT Ltd. has a mean NPV of ₹ 600. The project manager of the
company wants to determine the probability of the NBPV of the project under
different ranges. If the standard deviation of NBPV is ₹ 300, what is the probability
of the NPV between the range of ₹ 375 and ₹ 675?
[Given: Area under normal Curve from O to Z]:
Z=O to Z 0.15 0.25 0.50 0.60 0.75 1.25 1.30
Value 0.05962 0.09871 0.19146 0.22575 0.27337 0.39435 0.40320
a) 27.34%
b) 37.21%
c) 40.13%
d) 44.04%
3. A company is considering four projects A, B, C and D with the following information:
Project A Project B Project C Project D
Expected NPV (₹) 60,000 80,000 70,000 90,000
Standard deviation (₹) 4,000 10,000 12,000 14,000
Which project will fit the requirement of low risk appetite?
a) Project A
b) Project B
c) Project C
d) Project D
4. There are 4 investments
X Y Z U

The standard deviation is 37,947 44,497 42,163 41,997

Expected Net Present Value(₹) 90,000 1,06,000 1,00,000 90,000

Which investment has the highest risk?

a) X
b) Y
c) X
d) U

11
5. The following information of a project are given below:
Expected cash flow (₹) Probability
6,000 0.20
16,000 0.80
If certainty equivalent coefficient is 0.7, what will be certain (Risk less) cash flows
of the project?
a) ₹12,000
b) ₹9,800
c) ₹9,000
d) ₹15,400
6. SANTIKA project has a mean value of ₹ 11,700. The management wants to determine
the probability of the NPV of the project under different ranges. If the standard
deviation (SD) of the project is ₹ 6,000, what will be the probability of NPV between
₹ 7,200 and ₹ 13,200?
[Given: Area under standard normal curve]
Z = O to Z 0.10 0.25 0.50 0.60 0.75 1.00 1.25 1.50
Table 0.0398 0.0987 0.1915 0.2257 0.2734 0.413 0.3944 0.4332
value
(Calculation up to two decimal points)
a) 17.47%
b) 22.55%
c) 37.21%
d) None of the above.
7. SBT company is considering four projects P, Q, R and T with the following information:
Project A Project B Project C Project D
Expected NPV (₹) 1,20,000 1,60,000 1,40,000 1,80,000
Standard Deviation 8,000 20,000 24,000 28,000
(₹)
Identify the least risky project if coefficient of variation is used:
a) Project P
b) Project Q
c) Project R
d) Project T
8. If nominal discounting rate is 15%, inflation rate is 5%, then real discounting rate will
be _____
a) 9.52%
b) 9.25%
c) 10.25%
d) 10.52%

12
9. If project cost = ₹ 12,000, Annual cash flow = ₹ 4,500 Cost of capital = 14%, life =
4 years, PVIFA (14%, 4) = 2.9137, then the sensitivity with respect to the project
cost is
a) 9.27%
b) 10.27%
c) 9.72%
d) 10.72%
10. The following information is available with respect to Project X
NPV Estimate (₹) 30,000 60,000 1,20,000 1,50,000
Probability 0.1 0.4 0.4 0.1
The expected NPV will be __________
a) ₹ 1,00,000
b) ₹75,000
c) ₹90,000
d) ₹1,20,000
11. If expected NPV = ₹ 1,20,000 and S.D = ₹30,000, then coefficient of variation will
be
a) 25%
b) 20%
c) 30%
d) 50%
12. Given, expected value of profit without perfect information = ₹1,600 and expected
value of perfect information = ₹300, then expected value of profit with perfect
information will be
a) ₹1,300
b) ₹1,900
c) ₹950
d) None of the above
13. If the cash flows over the life of the project are perfectly correlated, the Standard
Deviation is determined using the formula ___________
∑ 𝝈𝟐
a) SD = (𝟏+𝒊)𝟐
∑𝝈
b) SD = (𝟏+𝒊)𝟐
∑ 𝝈𝟐
c) SD =
(𝟏+𝒊)𝟐
𝝈𝒕
d) SD = ∑ (𝟏+𝒊)𝒕

14. Coefficient of variation

a) Is an absolute measure of risk
b) Is a relative measure of risk
c) Is given by mean expected return by standard deviation
d) Is given by the product of mean expected return and standard deviation

13
ANSWER

1 B 11 A
2 B 12 B
3 A 13 D
4 D 14 D
5 B
6 C
7 A
8 A
9 A
10 C

14
1. The following details relate to an investment proposal of XYZ Ltd. Investment outlay
— ₹100 lakhs
Lease Rentals are payable at ₹180 per ₹1,000 Term of lease—8 years
Cost of capital—12%
What is the present value of lease rentals, if lease rentals are payable at the end of
the year? [Given PV factors at 12% for years (1-8) is 4.9676.
a) ₹98,14,680
b) ₹89,41,680
c) ₹94,18,860
d) ₹96,84,190
2. The major advantage of leasing is that it .
a) provides flexible financing
b) provides lower payments
c) avoids risks of obsolescence.
d) All of the above
3. A finance lease is an agreement between an owner of an asset and a user of that
asset wherein the:
a) usual risks and benefits of ownership are transferred to the user;
b) legal title to property is transferred to the lessee when the first lease payment is
made;
c) ownership passes to the lessor on inception date of the lease;
d) substantially all of the risks and benefits of ownership remain with the lessor.
4. A way to analyse whether debt or lease financing would be preferable is to:
a) compare the net present values under each alternative, using the cost of capital as
the discount rate.
b) compare the net present values under each alternative, using the after-tax cost of
borrowing as the discount rate.
c) compare the payback periods for each alternative.
d) compare the effective interest costs involved for each alternative.
5. Which of following clearly define the Leasing services?
a) One party agrees to rent property owned by another party
b) It guarantees the lessee, also known as the tenant, use of the asset
c) It guarantees the lessor, regular payments from the lease
d) All of the above.
6. The type of lease that includes a third party, a lender, is called as which of the
following?
a) Sale and leaseback
b) Leveraged Lease
c) Direct leasing arrangement
d) Operating lease

16
ANSWER

1 B

2 D

3 A

4 B

5 D

6 B

10

17
1. The concept of securitization is associated with _____.
a) Capital market
b) Money market
c) Debt market
d) Foreign exchange market
2. In securitization who is the issue of securities?
a) SPV
b) Underwriter
c) Depositer
d) Insurer
3. Under “securitisation process”, the bank or financial institution which gives loan is
known as;
a) SPV
b) Obligor
c) Originator
d) Credit enhancer
4. The concept of securitisation is associated with______.
a) Capital market
b) Money market.
c) Debt market.
d) Foreign exchange market.
5. Under “securitisation process”,_________ are instruments which issued subsidiary
company in respect of receivables of holding or parent company
a) Pass through certificate
b) Pay through certificate
c) Preferred stock certificate
d) None of these
6. Under “securitisation process”, original borrower is known as;
a) SPV
b) Obligor
c) Originator
d) Credit enhancer
7. _______ certificate under securitisation have multiple maturity structure.
a) Pass through certificate
b) Pay through certificate
c) Preferred stock certificate
d) Interest only certificate

18
ANSWER

1 C
2 A
3 C
4 C
5 C
6 B
7 B
8
9
10

19
1) A Ltd. has an EPS of ₹3 last year and it paid out 60% of its earnings as dividends
that year. This growth rate in earnings and dividends in the long term is expected
to be 6%. If the required rate of return on equity for Ashrin Ltd. is 14%. Calculate
the P/E ratio of A Ltd.
a) 7.65
b) 7.85
c) 7.95
d) 7.50
2) estimate the difference between the required rate of return and the growth
rate.
a) Retention ratio
b) Leverage ratio
c) Payout Ratio
d) Dividend yield ratio
3) Two Firms P Ltd and M Ltd are similar in all respects expect that M Ltd uses
₹10,00,000 debt in its capital structure. If the corporate tax rate for these firms
is 40%, Calculate the value of M Ltd exceeds that of P Ltd?
a) ₹4,00,000
b) ₹4,40,000
c) ₹4,04,000
d) ₹4,00,400
4) A ₹1,000 per value bond bearing a coupon rate of 14% matures after 5 years. The
required rate of return on this bond is 10%. The value of the bond (to the nearest
rupee) will be:
a) 1,125
b) 1,152
c) 1,512
d) 862.20
5) Mr. Ravi is planning to purchase the shares of X Ltd. which had paid a dividend of
₹2 per share last year. Dividends are growing at a rate of 10%. What price would
Mr. Ravi be willing to pay for X Ltd.’s shares if he expects a rate of return of
20%?
a) ₹22
b) ₹24
c) ₹20
d) ₹21
6) XYZ Ltd. has a uniform income that accrues in a 4 - year business cycle. It has
an average EPS of ₹20 (per share of ₹100) over its business cycle. Find out the
cost of equity capital, if market price is ₹175.

20
 a) 11.43%
b) 12.43%
c) 10.43%
d) 13.43%
7) X Ltd. issued ₹100, 12% Debentures 5 years ago. Interest rates have risen since
then, so that debentures of the company are now selling at 15% yield basis. What
is the current expected market price of the debentures?
a) ₹75
b) ₹80
c) ₹90
d) ₹85
8) Unlevered beta and effective tax rate of S Ltd is 0.8 and 35 percent respectively.
The company intends to undertake a project with 60 percent debt financing.
Assuming risk free rate of 7.5 % and market premium 8 %, calculate cost of
equity (rounded up to two decimal points)
a) 13.90%
b) 20.14%
c) 16.40%
d) None of (A), (B) or (C)
9) The beta co-efficient of equity stock of ARISTO LTD is 1.6. The risk free rate
of return is 12% and the required rate of return is 15% on the market portfolio.
If dividend expected during the coming year ₹2.50 and the growth rate of dividend
and earnings is 8%. At what price the stock of ARISTO LTD. Can be sold (based
on CAPM)?
a) ₹12.50
b) ₹16.80
c) ₹28.41
d) Insufficient Information.
10) Dividend-Payers Ltd. has a stable income and stable dividend policy. The average
annual dividend payout is ₹27 per share (Face Value = ₹100). You are required to
find out Dividend payout in year 2, if the company were to have an expected
market price of ₹160 per share at the existing cost of equity. [The market price
in year 1 is ₹150]
a) ₹28.88
b) ₹26.86
c) ₹28.80
d) ₹26.98
11) P Ltd. has an EPS of ₹75 per share. Its Dividend Payout Ratio is 30%. Earnings
and dividends of the company are expected to grow at 6% per annum. Find out

21
 the cost of equity capital if its market price is ₹300 per share.
a) 11.5%
b) 12.5%
c) 13.5%.
d) 14.5%
12) In a constant dividend model, the following estimates the difference between
the required rate of return and the growth rate:
a) Earnings Retention ratio
b) Leverage ratio
c) Dividend Pay-out ratio
d) Dividend yield ratio
13) EZAN Ltd. has on ROE of 18% and a ploughback ratio of 50%. The market
Capitalization rate is 13%. If the coming year’s earnings are expected to be ₹4
per share, at what price EZAN’s share should sell in 3 years?
a) 15%
b) 11%
c) 4%
d) Insufficient information
14) ABON Ltd’s earning per share is ₹15 and growth rate of earning is 5%. The earnings
growth rate is expected to stay at this level in the near future. It its payout ratio
is 50% and costs of capital is 15%, what will be the market price of the share
after three years?
a) ₹ 95.50
b) ₹ 91.16
c) ₹ 90.20
d) None of the above
15) A ₹ 1,000 per value bond bearing a coupon rate of 14% matures after 5 years.
The required rate of return on this bond is 10%. The value of the bond (to the
nearest rupee) will be:
a) 1,125
b) 1,152
c) 1,512
d) 862.20
16) In a constant dividend model, the following estimates the difference between the
required rate of return and the growth rate :
a) Earnings Retention ratio
b) Leverage ratio
c) Dividend Pay-out ratio
d) Dividend yield ratio

22
17) The price-earnings ratio of a stock reflects the
a) Growth of the company
b) Market mood for the company stock
c) Earnings retained and invested in the company
d) Dividend paid out for the company’s stock
18) The growth in book value per share shows the
a) Rise in the share price
b) Increase in the physical assets of the firm
c) Increase in the net worth
d) Growth in reserves
19) Which of the following is not a component of ROE analysis?
a) Pre-tax margin
b) Asset turnover ratio
c) Effective tax rate
d) Dividend payout ratios
20) Which of the following does not form a part of company analysis?
a) A trend analysis of the company’s market share
b) Life cycle analysis of the industry
c) Leverage and coverage ratio analysis
d) Cost structure and break even analysis
21) An industry in the growth stage of its life cycle is indicated by
a) High P/E ratios
b) High dividend payout ratios
c) High dividend yield
d) High investment in R&D
22) Degree of financial leverage (DFL) expresses the relationship between
a) EPS and EAIT
b) EPS and P/E
c) EPS and EBIT
d) EPS and Sales
23) Liquidity of a company generally measures
a) The ability of a company to pay its employees in a timely manner
b) The ability to pay interest and principal on all debt
c) The ability to pay dividends
d) The ability to pay current liabilities
24) A common stock ratio
a) Is directly related to the company’s growth rate
b) Can be zero for a growth firm
c) Measures the earnings of a share as a percentage of its market price
d) Indicates the future cash dividends to be expected

23
25) An industry may have short life due to
a) Legal restrictions
b) Evolution of replacement industry which diminishes the demand for the original
industry
c) Coming into force of a newer technology which makes the existing one unviable from
operating costs point of view
d) All of the above.
26) Competition in an industry is generally affected by the
a) Ease with which the new entrants can enter
b) Relationship among the existing players
c) Bargaining power of buyers and suppliers
d) All of the above
27) High growth rates in earnings and market share are characteristics of companies
which are in
a) Maturity stage
b) Expansion stage
c) Pioneering stage
d) Declining stage
28) Companies in maturity stage are characterized by
a) High dividend payout ratios
b) Fluctuation in earnings
c) Presence of new investment opportunities
d) All of the above
29) Which of the following can be classified as a lag indicator of economic growth?
a) Ratio of trade inventories to sales
b) Manufacture and trade sales
c) Orders for plant and equipment
d) Business confidence index
30) In Porter’s structural analysis, which of the following is not considered as an entry
barrier?
a) Product differentiation
b) Switching costs
c) Capital requirements
d) Low value addition
31) According to Porter’s model, the rivalry among existing competitors will be high if
a) There are diverse competitors
b) There are equally balanced competitors
c) The industry growth is high
d) None of the above

24
32) A business division with high growth but low relative market share is referred to as
a
a) Cash cow
b) Profit center
c) Question mark
d) Star
33) An industry in the expansion stage of its life cycle in indicated by
a) High P/E ratios
b) High dividend pay-out ratios
c) High dividend yield
d) All of the above
34) In the bull market
a) The stock prices are increasing
b) Each peak is higher than the previous peak
c) Each bottom is higher than the previous bottom
d) Both (b) and (c)
35) The declining market is called ‘bear market’ because of the
a) Long hibernation period of bears
b) Traditional usage
c) Fur coat of the bears
d) Attacking manner of bears
36) Dow theory was developed to explain the
a) New York stock market movements
b) Dow Jones industrial averages
c) Security market price movements
d) Buy and sell strategy
37) According to stock market psychology
a) Investors forget the past
b) History repeats itself
c) More faith is placed in predictions of the future
d) Both (a) and (b)
38) Violation of a trend line means
a) Moving away from the trend line
b) Changing its direction
c) Penetration of the trend line
d) Cutting the rising trend line from above
39) The chartist believes that charts
a) Spot the current trend for buying and selling
b) Indicate the future action to be taken

25
 c) Shows historical movements
d) All of the above
40) The stock price in the stock market
a) Hovers around the support level or resistance level
b) Moves between the same support and resistance levels
c) Moves between the changing support and resistance level
d) Both (a) and (b)
41) A company has an ROE of 0.24 and book value of ₹25.38. the EPS for this company
is
a) 6.09
b) 7.25
c) 6.94
d) 6.13
42) If ROA is 0.195 and the leverage factor of 1.38, the ROE of the company is
a) 0.279
b) 0.283
c) 0.254
d) 0.269
43) It was observed that in a certain month, 6 out of 10 leading indicators and moved
up as compared to 4 indicators in the previous month. The diffusion index for the
months was
a) 20%
b) 40%
c) 60%
d) 80%

26
ANSWER

1 D 21 A 41 A
2 D 22 C 42 D
3 A 23 D 43 C
4 B 24 B 44
5 A 25 D 45
6 A 26 D 46
7 B 27 C 47
8 B 28 A 48
9 C 29 A 49
10 C 30 D 50
11 C 31 B 51
12 D 32 C 52
13 B 33 A 53
14 B 34 D 54
15 B 35 D 55
16 D 36 B 56
17 B 37 B 57
18 D 38 C 58
19 D 39 D 59
20 B 40 C 60

27
1)
Given Last Year Current Year
Sales unit 2,000 2,800
Selling Price per unit ₹10 ₹10
EPS ₹9.60 ₹38.40

What is the Degree of Combined Leverage?

a) 6.5
b) 5.6
c) 7.5
d) 5.7
2) MI Ltd. has annual sales of ₹365 lacs. The company has investment opportunities in
the money market to earn a return of 15% per annum. If the company could
reduce its float by 3 days, what would be the increase in company's total return?
(Assume 1 year = 365 days)
a) ₹45,000
b) ₹40,000
c) ₹54,000
d) ₹46,000
3) A company has expected Net Operating Income – ₹2,40,000; 10% Debt –
₹7,20,000 and Equity Capitalisation rate - 20%. What is the weighted average cost
of capital for the company?
a) 0.15385
b) 0.13585
c) 0.18351
d) 0.15531
4) A firm has sales of ₹75,00,000, variable cost of ₹42,00,000 and fixed cost of
₹6,00,000. It has a debt of ₹45,00,000 at 9% interest and equity of ₹55,00,000.
At what level of sales, the EBIT of the firm will be equal to zero?
a) ₹28,48,500
b) ₹28,84,500
c) ₹22,84,500
d) ₹26,48,500
5) E Limited has earnings before interest and taxes (EBIT) of ₹10 million at a cost of
7%., Cost of equity is 12.5%. Ignore taxes. What is the overall cost of capital?
a) 11.26%
b) 11.62%
c) 16.12%
d) 12.61%

28
 6) ‘Bank rate’ published by the Reserve Bank refers to
a) the repo rate transacted by RBI
b) the rate at which housing or other long term loans shall be sanctioned by scheduled
banks to their customers
c) The rate at which RBI is willing to buy or rediscount bills of exchange or other
commercial paper
d) the rate which RBI uses as cut-off for auction of Government securities
7) Which of the following investment avenues has the least risk associated with it?
a) Corporate Fixed Deposits
b) Deposits in commercial banks
c) Public Provident Fund
d) Non-convertible zero coupon bonds
8) If conclusion and opinions of equity analysts and other experts, based on publicly
available information are reflected in stock prices, then stock market exhibits
a) Weak form of efficiency
b) Semi-strong from of efficiency
c) Inefficiency
d) Both (A) and (B) above
9) If the director of COMTECH Ltd. Who had access to inside information is unable to
use this information to make Supernormal profits, its is a sign of
a) Weak form of efficient market hypothesis.
b) Semi-strong from of efficient market hypothesis.
c) Strang form of efficient market hypothesis.
d) Incompetence of the director.
10) The slope of the security market line (SML) denotes
a) The risk premium required
b) Beta of the security
c) Market volatility
d) The influence of the unsystematic
11) An instrument of debt having investment grade rating by a credit rating agency
a) Implies that the investment is safe and recommends that the investor can go head and
invest in security.
b) Implies that all statutory compliances of the issuing entry are fulfilled.
c) Implies that the investment is sound at the time of issue and the issue price is
reasonable.
d) Implies an opinion of the rating agency that the instrument will pay back the capital and
the stated interest on time.
12) If the reserve bank of India (RBI) intends to reduce the supply of money to brig down
inflation, it might

29
 a) Increase the cash reserve ration (DRR).
b) Decrease the statutory liquidity ratio (SLR)
c) Buy government securities in the open market.
d) Lower the bank rate.
13) The closing price of the stock of TORRENT LTD. On consecutive trading days are as
under:
Days Closing pricing (₹)
1 125.45
2 135.25
3 132.75
4 142.75
5 145.25

The Relative Strength of the stock of Torrent Ltd. is

a) 0-9875
b) 1-0255
c) 1-0628
d) None of the above
14) A buy signal provided by moving average analysis of stock prices is when the stock
price line
a) rises above a falling moving average line
b) falls below a flattening moving average line.
c) falls below a falling moving average line
d) falls below a rising moving average line
15) Default risk is nil in:
a) Treasury bills
b) IDBI bonds
c) ICICI bonds
d) Reliance bonds
16) Value of the bond depends on
a) Coupon rate
b) Expected yield to maturity
c) Years to maturity
d) All of the above
17) Coupon yield of the bond is
a) The discounted value of the bond
b) Coupon payment stated as a percentage of a bond’s features
c) Coupon payment stated as a percentage of a bond’s present price
d) Both (a) and (b)

30
18) Yield to maturity is same as
a) NPV
b) IRR
c) Geometric mean
d) Both (b) and (c)
19) By investing in bonds, a trader is subjecting himself to the following risks:
a) Interest rate risk
b) Default risk
c) Reinvestment risk
d) All of the above
20) If a bondholder is to receive the stated yield to maturity, he has to invest the interim
cash flow at
a) Existing interest rates
b) Coupon rate
c) Stated YTM
d) Current yield
21) The definition “the promised compounded rate of return an investor will receive from
a bond purchased at the current market price and held to maturity” pertains to
a) Yield to maturity
b) Realized yield
c) Current yield
d) Yield to call
22) Bond volatility is inversely related to
a) Term to maturity
b) Yield to maturity
c) Coupon rate
d) Both (b) and (c)
23) The constant growth dividend discount model will not produce a finite value for a stock
if the dividend growth rate is
a) Above its historical average
b) Below its historical average
c) Equal to the historical average
d) Above the required rate of return of the stock
24) Which among the following is/are the determination of price - earnings ratio?
a) Dividend payout ratio
b) Growth rate in dividends
c) Required rate of return
d) All of (a), (b) and (c) above
25) All other things being equal, which one of the following bonds will have the maximum
volatility?

31
 a) 15 year, 15% coupon bond
b) 5 year, 10% coupon bond
c) 15 year, 10% coupon bond
d) 5 year, 15% coupon bond
26) A Ltd. has 1 million AAA rated 12% bonds outstanding, maturity in 7 years from now.
If the market interest rate is 14%, the price of the bond is (assume FV ₹100) and
coupons are payable annually
a) 90.00
b) 91.46
c) 93.00
d) 94.00
27) If the YTM on a one-year GOI bond and a two-year GOI bonds are 7.97% and
8.86%, respectively then the implicit one-year forward rate at the end of year 1 is
a) 8.09%
b) 9.23%
c) 9.66%
d) 9.76%
28) You just purchased a 10-year maturity, semi-annual coupon bond for ₹1,148.77 (face
value ₹1,000), a coupon rate of 8% and a yield to maturity 6%. The bond is callable
in four years at ₹1,080. what is the yield to call?
a) 5.6%
b) 6.0%
c) 7.2%
d) 8.0%
[Hints: n = 8; call price = ₹1080; semi-annual interest payment will be ₹40.
spreadsheet or calculator entries will be N = 8; PV = -1148.77; PMT = 40, FV = 1080,
CPT 1/Y 2.80. the annual yield to call = 2.80 × 2 = 5.60%]
29) A 20-year maturity bond with a par value ₹1,000 makes semi-annual payments at a
coupon rate of 8%. The YTM is 9%. How much should you pay for the bond?
a) ₹1080
b) ₹1000
c) ₹908
d) ₹966
30) A bond with a par value of ₹1,000 has a 6% annual coupon rate. Interest is paid
semi-annually and the price of the bond is ₹1,025. what is the current yield?
a) 3.0%
b) 2.9%
c) 6.2%
d) 5.9%

32
31) A semi-annual coupon bond is currently selling for ₹1,142.12. The bond has a maturity
of 10 years, a par value of ₹1,000 and a 9% coupon rate. What is the yield to
maturity?
a) 3.5%
b) 7.0%
c) 7.5%
d) 9.0%
32) One year ago, you purchased an annual coupon bond for ₹817.84. At that time the
bond had a maturity of 15 years, a face value of ₹1,000, a coupon rate of 5% and a
yield to maturity of 7%. One year later, the yield to maturity increased to 7.5%.
what is the total rate of return for the year?
a) 9.79%
b) 2.44%
c) 7.50%
d) 3.75%
33) Mr. X expects 20% return from his investment. The dividend from the stock is ₹2.0
and the present price is ₹50. What should be the future price of the stock?
a) ₹ 56.39
b) ₹ 58.00
c) ₹ 60.00
d) ₹ 62.30
34) A stock of ₹10 face value has declared 35% dividend for the current year. The stock
is currently selling for ₹40. What I the dividedly yield?
a) 35%
b) 8.75%
c) 7.0%
d) 8.25%
35) According to the constant growth model, the next year’s dividend is ₹2.00, required
rate of return is 15% and the growth rate is 10%, the market price would be
a) ₹ 50
b) ₹ 45
c) ₹ 40
d) ₹ 48
36) The current price is ₹100, the required rate of return is 20% and the dividend paid
₹3.00 on a share of ₹10 face value. What is the expected growth rate?
a) 15%
b) 16%
c) 18%
d) 17%

33
37) A stock with a dividend pay-out ratio of 45%, required rate of return is 15% and a
constant growth rate of 10% will have a P/E ratio of
a) 3 times
b) 9 times
c) 8 times
d) 7.5 times
38) A company with PAT of ₹ 40 Lakh, tax rate of 50%, RONW of 100%, reserves of ₹
30 lakh and a par value ₹5 will have pre-tax EPS of
a) ₹ 4.00
b) ₹ 40.00
c) ₹ 36.00
d) ₹ 42.00
39) The current dividend, market price and the annual dividend growth rate of a company
are ₹2.50 per share, ₹50 per share and 5%, respectively. The capitalization rate of
the equity will be
a) 0.0526
b) 0.10
c) 0.1050
d) 0.1025

ANSWER

1 C 21 A
2 A 22 D
3 A 23 C
4 C 24 D
5 A 25 D
6 C 26 B
7 C 27 D
8 B 28 A
9 C 29 C
10 A 30 D
11 D 31 B
12 A 32 B
13 C 33 B
14 D 34 B
15 A 35 C
16 D 36 D
17 C 37 B
18 D 38 B
19 D 39 D
20 C 40

34
1) The standard deviation of Greaves Ltd. Stock is 24% and its correlation coefficient
with market portfolio is 0.5. The expected return on market is 16% with the
standard deviation of 20%. If the risk free return is 6%, what will be the required
rate of return on Greaves Ltd. Script?
a) 12%
b) 11%
c) 13%
d) 11.5%
2) An investor has three alternatives of varying investment values. The data available
for each of these alternatives are given below:
Alternative Expected Return (%) Standard Deviation of Return
I 23 8.00
II 20 9.50
III 18 5.00
Which alternative would be the best if coefficient of variation is used?
a) Alternative III is the best as its co-efficient of variation is the lowest
b) Alternative II is the best as its co-efficient of variation is the lowest
c) Alternative I is the best as its co-efficient of variation is the lowest
d) None
3) The probability distribution of security N is given below:
Probability Return (%)
0.30 30
0.40 20
0.30 10
The risk of the return of the security will be around
a) 60%
b) 8%
c) 20%
d) 24%
4) An investor has limited funds to invest. The following information of four securities
is given below:
Particulars Security A Security B Security C Security D
Standard Deviation 10% 15% 11% 12%
Average Return 12% 20% 17% 15%
The best security to invest in if he wants more safety in relation to the return will
be:
a) Security D
b) Security C
c) Security A
d) Security B

35
5) An investor owns a stock portfolio equally invested in a risk free asset and two
stocks. If one of the stocks has a beta of 0.75 and the portfolio is as risky as the
market, the beta of the stock in portfolio is
a) 2.12
b) 2.25
c) 2.56
d) 2.89
6) You are given the following information: required rate of return on risk free
security 7%; required rate of return on market portfolio of investment 12%; beta
of the firm 1.7.
The cost of equity capital as per CAPM approach is
a) 16.3%
b) 18.0%
c) 18.60%
d) 19%
7) The following is not a systematic risk.
a) Market Risk
b) Interest Rate Risk
c) Business Risk
d) Purchasing Power Risk
8) The following statement is true: (If ‘r’ denotes the correlation coefficient)
a) r = +1 implies full diversification of securities in a portfolio
b) r = -1 implies full diversification of securities in a portfolio
c) r = 0 implies an ideal situation of zero risk
d) ‘r’ is independent of diversification. Nothing can be inferred based on r
9) The following is not a feature of Capital Market Line:
a) There is no unsystematic risk
b) The individual portfolio exactly replicates market portfolio in terms of risk and reward
c) Estimates portfolio return based on market return
d) Diversification can minimize the individual portfolio risk
10) For a portfolio containing three securities A, B and C, correlation coefficients ρAB
= +0.4; ρAC = +0.75; ρBC = - 0.4; standard deviation σA = 9; σB = 11; σC = 6;
weights ωA = 0.2; ωB = 0.5; ωC = 0.3; the covariance of securities A and B is
a) 3.96
b) 24.75
c) 39.6
d) 247.5
11) The intercept of the Security Market Line (SML) on the y axis is
a) E(Rm) - Rf

36
 b) 1/[E(Rm) - Rf]
c) Rf - E(Rm)
d) Rf
12) A mutual fund wants to hedge its portfolio of shares worth ₹10 crore using the
NIFTY Index Futures. The contract size is 100 times the index. The index is
currently quoted at 6840. The Beta of the portfolio is 0.8. The beta of the index
may be taken as 1. What is the number of contracts to be traded?
a) 110
b) 117
c) 145
d) 123
13) A firm has an equity beta of 1.40 and is currently financed by 25% debt and 75%
equity. What will be the company's equity beta if the company changes its financing
policy to 33% debt and 67% equity? [Assume corporate tax at 35% and zero
debt beta]
a) 1.62
b) 1.72
c) 1.42
d) 1.52
14) Following information is available regarding a mutual fund:
Return 13, Risk (σ) 16, Beta (β) 0.90, Risk free rate 10. Calculate Sharpe ratio.
a) 0.18
b) 0.16
c) 0.19
d) 0.17
15) A project had an equity beta of 1.3 and was going to be financed by a
combination of 30% debt and 70% equity. Assuming debt-beta to be zero,
calculate the project beta and return from the project taking risk free rate of
return to be 10% and return on market portfolio of 18%.
a) 14.28%
b) 17.28%
c) 15.28%
d) 16.28%
16) Historically, when the market return changed 10%, the return on stock of Arihant
Ltd changed by 16%. If variance of market is 257.81, what would be the
systematic risk for Arihant Ltd?
a) 320%
b) 480%
c) 660%
d) Insufficient information.

37
17) A project had an equity beta of 1.4 and is to be financed by a combination of
25% Debt and 75% Equity. Assume Debt Beta as zero, Rf = 12% and Rm = 18%.
Hence, the required rate of return of the project is
a) 16.72%
b) 18.30%
c) 17.45%
d) 12.00%
18) Which of the following securities is most liquid?
a) Money Market instruments
b) Capital Market instruments
c) Gilt-edged securities
d) Index futures
19) While plotting a graph with risk on X-axis and expected return on Y-axis, a line
drawn with co-ordinates (0, rf) and (β, rm) is called
a) Security Market Line
b) Characteristic Line
c) Capital Market Line
d) CAPM Line
20) Rate of inflation = 5.1%, β = 0.85, Risk premium = 2.295%, Market return = 12%.
The real rate of return will be
a) 4.2%
b) 11.70%
c) 6%
d) 5.95%
21) If the covariance between the returns on a portfolio BC and returns on the market
index is 25 and the variance of returns on the market index is 20, what will be the
systematic risk of BC under the variance approach?
a) 1.25
b) 1.56
c) 5.45
d) 31.25
22) A wants to hedge its portfolio of shares worth ₹150 million using the Index futures.
The contract size is 100 times the index. The index is currently quoted at 7500.
The beta of the portfolio is 0.9. Consider the beta of the index as 1. The number
of contracts to be traded is
a) 18000
b) 180
c) 22
d) 200

38
23) A portfolio holding 90% of its assets in CNX Nifty stocks in proportion to their
market capitalization and 10% in Treasury Bills is more sensitive to
a) Systematic Risk
b) Unsystematic Risk
c) Interest Rate Risk
d) Index Risk
24) Project X is to be financed by 40% debt (with zero beta) and balance with
equity (with 1.3 beta). If the risk free rate is 13% and return on market portfolio
is 22%, the return from the project will be
a) 13.07%
b) 13.70%
c) 24.70%
d) 20.02%
25) The value of beta of a security does not depend on
a) standard deviation of the security
b) standard deviation of the market
c) correlation between the security and the market
d) risk free rate
26) The expected return of a portfolio ZON is 15%, and variance of return is 280(%)2.
If the investor’s tolerance is 70, what will be the investors utility?
a) 15%
b) 11%
c) 4%
d) Insufficient information
27) Mr. KAYON a portfolio manager managing a portfolio XB whose current market value
of ₹ 1,800 lakh. It is expected that the market are likely to correct downwards
and hedging needs to be adopted using NIFTY index futures. Currently Index
futures are quoted at 8000 with each contract underlines 200 units. Mr. KAYON
hedges 100% of his portfolios. If the number of NIFTY Index contracts to be sold
is 180, what will be the portfolio Beta?
a) 1.60
b) 1.50
c) 1.20
d) None of the above
28) Which of the following statements is / are true?
i. For a characteristics line, Y-axis represents the retunes for a particulars
security and the X-axis represents the returns for the market Index.
ii. The SML Line is the same as the Characteristics line for an individual security
iii. The slop of the SML is the Beta for the particular security.

39
 a) Only I above
b) ‘Only II above
c) Only III above
d) Only I and II above
29) The expected return from a portfolio is 6% and its variance of return (Risk squared)
is 285%. If the investor’s tolerance is 60; the risk penalty will be
a) 5.80%
b) 4.95%
c) 4.90%
d) 4.75%
30) The slope of the security market line (SML) denotes
a) The risk premium required
b) Beta of the security
c) Market volatility
d) The influence of the unsystematic
31) The following particulars relate to a mutual fund scheme:
Sector Investment in shares Index on purchase Index on valuation
(at cost) ₹ lakh date date
IT and ITES 28 1,750 2,950
Infrastructure 15 1,375 2,475

The outstanding number of units is 1.25 lakhs. What will be the net asset value
(NAV) per unit?
a) ₹ 59.36
b) ₹ 55.30
c) ₹ 54.31
d) ₹ 53.29
32) The intercept of the security market line (SML) on the Y-axis is
a) the risk free return.
b) the positive risk premium.
c) the Beta of the security.
d) the expected return when ẞ = 1.
33) Which one of the following is not a part of Market Risk and why?
a) Equity Risk
b) Inflation Risk
c) Downgrade Risk
d) None of the above
34) MS. RATRI, a prospective investor has collected the following information pertaining
to two securities A and B.

40
 Particulars Security A Security B
Expected return% 15 18
Standard deviation of return % 18 22
Beta 0.90 1.40
2
Variance of returns on the market index is 335 (%) . The correlation co-efficient
between the returns on securities A and B is 0.75. The systematic risk of portfolio
consisting of these two securities in equal proportions is
a) 24.63(%)2
b) 125.78(%)2
c) 297.56(%)2
d) None of (A), (B) and (C)
35) The portfolio composition of Mr. SANU is given below:
(Amount in ₹ lakh)
Equity 120
Cash / Cash equivalents 40
Total 160
The beta of the equity portion of the portfolio is 0.85 and the current NIFTY
future is at 4261.5. The multiple attached to NIFTY future is 100. If Mr. SANU
purchases 23 future contracts, his portfolio beta will be
a) 1.05
b) 1.12
c) 1.20
d) 1.25
36) P an Q are two mutually exclusive projects. P has a higher initial fixed cost and will
make a profit of ₹ 10,000 for a high ale s volume and a loss of ₹ 4,000 for a low
sales volume. For Q the corresponding amounts would be a profit of ₹ 7,000 or a
profit of ₹2,000. The probability of high sales volume is 60%. The expected value
of perfect information is
a) ₹ 9,000
b) ₹ 6,800
c) ₹ 12,600
d) ₹ 10,200
37) The Sharpe’s ratio and the Treynor’s of Reliance growth fund are 0.56 and 9.80,
respectively. The correlation co-efficient between returns of the fund and the
Market- Index is 0.70. What is the standard deviation of the market index’s
return?
a) 12.25%
b) 11.14%
c) 10.62%
d) Insufficient parameter’

41
38) While plotting a graph with risk on X-axis and expected return on Y-axis, a line
drawn with co-ordinates (o, rf) and (𝜷, rm) is called
a) Security market line
b) Characteristic line
c) Capital market line
d) CAPM line
39) MS PARNA is planning to construct a minimum risk portfolio by investing in the
shares of NAB Ltd., and SAN Ltd., The risk associated with the return of NAB
Ltd., and SAN Ltd. Are 23% and 25% respectively. If the co-variance between
the returns of shares of both companies is 0 (Zero), the proportion of funds to be
invested in the shares of NAB Ltd. Will be:
a) 45.84%
b) 54.16%
c) 66.67%
d) None of the above
40) The Sharpe ratio and Treynor ratio of CHOLA EQUITY FUND are 0-37 and 4-16
respectively. The risk premium on the Fund is 6%. Standard deviation of the Fund's
return is 11-80%. If the standard deviation of the Market Index's return is 9-
56%, the Correlation Co-efficient between return of the Fund and the Market will
be
a) 0-90
b) 0-85
c) 0-72
d) None of the above
41) An investor owns a stock portfolio equally invested in a risk free asset and two
stocks. If one of the stocks has a beta of 0.75 and the portfolio is as risky as the
market, the beta of the stock in portfolio is
a) 2.12
b) 2.25
c) 2.56
d) 2.89
42) You are given the following information: required rate of return on risk free security
7%; required rate of return on market portfolio of investment 12%; beta of the
firm 1.7. The cost of equity capital as per CAPM approach is
a) 16.3%
b) 18.0%
c) 18.60%
d) 19%

42
43) The following is not a systematic risk.
a) Market Risk
b) Interest Rate Risk
c) Business Risk
d) Purchasing Power Risk
44) The following statement is true:
(If ‘r’ denotes the correlation coefficient)
a) r = +1 implies full diversification of securities in a portfolio
b) r = -1 implies full diversification of securities in a portfolio
c) r = 0 implies an ideal situation of zero risk
d) ‘r’ is independent of diversification. Nothing can be inferred based on r.
45) The following is not a feature of Capital Market Line:
a) There is no unsystematic risk.
b) The individual portfolio exactly replicates market portfolio in terms of risk and reward.
c) Estimates portfolio return based on market return.
d) Diversification can minimize the individual portfolio risk.
46) A firm has an asset β = 1.3, equity β = 1.5. Then, which of the following is true?
a) The firm is unlevered.
b) Debt β is also 1.3.
c) The above data is not possible.
d) The firm is leveraged and the debt β is lower than the asset β.
47) For a portfolio containing three securities A, B and C,
correlation coefficients ρAB = +0.4; ρAC = +0.75; ρBC = - 0.4;
standard deviation σA = 9; σB = 11; σC = 6;
weights ωA = 0.2; ωB = 0.5; ωC = 0.3;
the covariance of securities A and B is
a) 3.96
b) 24.75
c) 39.6
d) 247.5
48) The intercept of the Security Market Line (SML) on the y axis is
a) E(Rm) - Rf
b) 1/[E(Rm) - Rf]
c) Rf - E(Rm)
d) Rf
49) A project had an equity beta of 1.4 and is to be financed by a combination of 25%
Debt and 75% Equity. Assume Debt Beta as zero, Rf = 12% and Rm = 18%.
Hence, the required rate of return of the project is
a) 16.72%
b) 18.30%
c) 17.45%
d) 12.00%

43
50) While plotting a graph with risk on X-axis and expected return on Y-axis, a line
drawn with co-ordinates (0, rf) and (β, rm) is called
a) Security Market Line
b) Characteristic Line
c) Capital Market Line
d) CAPM Line
51) Rate of inflation = 5.1%, β = 0.85, Risk premium = 2.295%, Market return = 12%.
The real rate of return will be
a) 4.2%
b) 11.70%
c) 6%
d) 5.95%
52) If the covariance between the returns on a portfolio BC and returns on the market
index is 25 and the variance of returns on the market index is 20, what will be the
systematic risk of BC under the variance approach?
a) 1.25
b) 1.56
c) 5.45
d) 31.25
53) A portfolio holding 90% of its assets in CNX Nifty stocks in proportion to their
market capitalization and 10% in Treasury Bills is more sensitive to
a) Systematic Risk
b) Unsystematic Risk
c) Interest Rate Risk
d) Index Risk
54) Project X is to be financed by 40% debt (with zero beta) and balance with equity
(with 1.3 beta). If the risk free rate is 13% and return on market portfolio is
22%, the return from the project will be
a) 13.07%
b) 13.70%
c) 24.70%
d) 20.02%
55) The probability distribution of security N is given below:
Probability Return (%)
0.30 30
0.40 20
0.30 10
The risk of the return of the security will be around
a) 60%
b) 8%
c) 20%
d) 24%

44
56) The value of beta of a security does not depend on
a) standard deviation of the security
b) standard deviation of the market
c) correlation between the security and the market
d) risk free rate
57) The intercept of the security market line on the y axis is Ans
a) the risk free return
b) the positive risk premium
c) the beta of the security
d) the expected return when β = 1
58) Security A has a total risk of ‘a’ and Security B has a total risk of ‘b’. a is greater
than b.The following is true:
a) If A has a higher systematic risk, B will have a higher unsystematic risk.
b) A has to have a higher systematic risk than B
c) A has to have at least the same amount of systematic risk as B
d) A can have a lower systematic risk than B
59) The following is true of standard deviation of returns of a portfolio under CAPM:
a) Market rewards the investor in proportion to the risk taken in the form of (the standard
deviation of the portfolio x(1-ρ), where ρ is the correlation coefficient between the
portfolio and market returns
b) Standard deviation of the portfolio is the sum of the standard deviations of the
securities in the portfolio
c) Standard deviation is a good measure to compare as it is the deviation per unit of the
mean return
d) Standard deviation is greater than the systematic risk of the portfolio.
60) An investor invested 40% of her money in Stock A and 60% in Stock B. Stock A
has a beta of 1.2 and Stock B has a beta of 1.6. If the risk-free rate is 5% and
the expected return on the market is 12%, the expected return of the investor
would be the following under Capital Asset Pricing Model:
a) 10.08%
b) 15.08%
c) 14.80%
d) 21.80%
61) Risk of two securities with different expected return can be compared with
a) Coefficient of variation
b) Standard deviation of securities
c) Variance of securities
d) None of the above

45
62) A portfolio having two risky securities can be turned risk less if
a) The securities are completely positively correlated
b) If the correlation ranges between zero and one
c) The securities are completely negatively correlated
d) None of the above
63) Efficient portfolios can be defined as those portfolios which for a given level of
risk provides
a) Maximum return
b) Average return
c) Minimum return
d) None of the above
64) Capital market line is:
a) Capital allocation line of a market portfolio
b) Capital allocation line of a risk free asset
c) Both a and b
d) None of the above
65) The object of portfolio is to reduce by diversification
a) Return
b) Risk
c) Uncertainty
d) Percentage
66) This type of risk is avoidable through proper diversification
a) Portfolio risk
b) Systematic risk
c) Unsystematic risk
d) Total risk
67) Beta is the slope of
a) The security market line
b) The capital market line
c) A characteristic line
d) The CAPM
68) A measure of risk per unit of expected return
a) Standard deviation
b) Coefficient of variation
c) Correlation coefficient
d) Beta
69) The greater the beta, the security involved
a) Greater the unavoidable risk
b) Greater the avoidable risk
c) Less the unavoidable risk
d) Less the avoidable risk

46
70) A statistical measure of the Degree to which two variables move together
a) Coefficient of variation
b) Variance
c) Covariance
d) Certainty equivalent
71) Which theory believes that the investors prefer larger to smaller returns from
securities?
a) Modern
b) Traditional
c) Markowitz
d) Sharpe
72) Modern portfolio theory ___ the relationship between risk and return
a) Maximizes
b) Minimizes
c) Quantifies
d) Does not assume
73) Which measures the systematic or non-systematic risk of a security?
a) Beta
b) Standard deviation
c) Variance
d) Range
74) ______ is the variability in a security’s returns resulting from fluctuations in the
aggregate market.
a) Market risk
b) Inflation risk
c) Credit risk
d) Intend rate risk
75) Which model related return to a single factor?
a) Markowitz
b) Single index
c) M.M Approach
d) Traditional
76) ______ Risk is the possibility that borrowers repay debt ahead of schedule.
a) Liquidity
b) Inflation
c) Prepayment
d) Investment
77) Which of the following is not a common risk factor?
a) Market Risk
b) Promotional Risk
c) Interest Rate Risk
d) Inflation Risk

47
78) ______ step involves determining periodically how the portfolio has performed over
the review period.
a) Portfolio performance evaluation
b) Portfolio revision
c) Portfolio construction
d) Performing security analysis
79) A combination of various investment products like bonds, shares, securities, mutual
funds and so on is called as _____
a) Portfolio
b) Investment
c) Speculation
d) Gambling
80) The Markowitz model identifies the efficient set of portfolios, which offers the.
a) Highest return for any given level of risk or the lowest risk for any given level of return.
b) Least-risk portfolio for a conservative, middle-aged investor
c) Long-run approach to wealth accumulation for a young investor
d) Risk-free alternative for risk-averse investors
81) A model for optimizing the selection of securities is the model.
a) Miller-Orr
b) Black-Sholes
c) Markowitz
d) Gordon
82) Market risk is best measured by the .
a) Alpha
b) Beta
c) Standard deviation
d) Coefficient of variation
83) The relevant risk for a well-diversified portfolio is .
a) Interest rate risk
b) Inflation risk
c) Business risk
d) Market risk
84) Company-specific risk is also known as .
a) Market risk
b) Systematic risk
c) Non-diversifiable risk
d) Idiosyncratic risk

48
85) Which of the following is true regarding the expected return of a portfolio?
a) It is a weighted average only for stock portfolios
b) It can only be positive
c) It can never be above the highest individual return
d) All of the above are true.
86) In order to determine the expected return of a portfolio, all of the following must
be known expect .
a) Probabilities of expected returns of individual assets
b) Weight of each individual asset to total portfolio value
c) Expected return of each individual asset
d) All of the above must be known in order to determine the expected return of a portfolio.
87) _______is concerned with the interrelationships between security returns.
a) Random diversification
b) Correlating diversification
c) Friedman diversification
d) Markowitz diversification
88) Unsystematic risk may arise due to the following reason.
a) Change in interest rate
b) Increase in population
c) Employee strike in the company
d) Exchange rate fluctuations
89) Total risk includes_____
a) Systematic risk only
b) Unsystematic risk only
c) Both a and b above
d) Only diversifiable risks
90) A portfolio comprises two securities and the expected return on them is 12% and
16% respectively. Determine return of portfolio if first security constitutes 40%
of total portfolio.
a) 12.4%
b) 13.4%
c) 14.4%
d) 15.4%
91) Mr. A invested ₹10,000 in a shares of XYZ Company 10 years ago, and that is
shares (including reinvested dividends) are currently worth ₹23,8000. Using this
information, calculate total investment return of Mr. A
a) 100%
b) 38%
c) 138%
d) 238%

49
92) What is the annualized return of Mr. A based on the data of the above question?
a) 8%
b) 9.06%
c) 10%
d) 11%
93) Mr. X invested ₹10,000 in shares of XYZ Company 20 years ago, and that his
shares (including reinvested dividends) are currently worth ₹18,800. Using this
information, calculate total investment return of Mr. A.
a) 100%
b) 38%
c) 58%
d) 88%.

ANSWER

1 A 21 D 41 B 61 A 81 C
2 A 22 B 42 A 62 C 82 D
3 B 23 A 43 C 63 A 83 D
4 B 24 D 44 B 64 C 84 C
5 B 25 D 45 D 65 B 85 C
6 A 26 B 46 D 66 C 86 D
7 C 27 A 47 C 67 C 87 D
8 B 28 A 48 D 68 B 88 C
9 D 29 D 49 B 69 A 89 C
10 C 30 A 50 A 70 C 90 C
11 B 31 A 51 A 71 A 91 C
12 B 32 A 52 D 72 C 92 B
13 D 33 C 53 A 73 A 93 D
14 C 34 C 54 D 74 A
15 B 35 D 55 B 75 B
16 C 36 B 56 D 76 C
17 B 37 A 57 A 77 B
18 C 38 A 58 D 78 A
19 A 39 B 59 D 79 D
20 A 40 B 60 B 80 D

50
1) The following information is available for a mutual fund: Return 13% Risk (S.D.
i.e. σ) 16% Beta (β) 0.90 Risk Free Rate 10% Treynor's Ratio of the mutual fund is:
a) 3.85
b) 4.43
c) 3.33
d) 3.73
2) A safety mutual fund that had a net asset value of ₹20 at the beginning of a
month, made income and capital gain distribution of ₹0.06 and ₹0.04 respectively
per unit during the month and then ended the month with a net asset value of
₹20.25. The monthly return is:
a) 2.25%
b) 1.75%
c) 1.25%
d) 1.65%
3) A mutual Fund had a Net Asset Value (NAV) of ₹72 at the beginning of the
year. During the year, a sum of ₹6 was distributed as Dividend.Besides, ₹4 as
Capital Gain distributions. At the end of the year, NAV was ₹84. Total return for
the year is :
a) 30.56%
b) 31.56%
c) 40.56%
d) 41.56%
4) Mr. X can earn a return of 18% by investing in equity shares on his own. Now he
is considering recently announced equity based mutual fund scheme in which initial
expenses are 6.70% and annual recurring expenses are 1.7%. How much should the
mutual fund earn to provide Mr. X a return of 18 per cent?
a) 22
b) 19
c) 24
d) 21
5) An investor has invested in a mutual fund when the NAV was ₹15.50 per unit. After
90 days the NAV was ₹14.45 per unit. During the period the investor got a cash
dividend of ₹1.35 per unit and capital gain distribution of Re. 0.20. The annualized
return based on 360 days year count will be
a) 3.23%
b) 12.92%
c) 0.8075%
d) 16.45%
6) A certain mutual fund has a return of 17% with standard deviation of 3.5% and

51
 the sharpe ratio is 4. The risk free rate is
a) 12.5%
b) 4%
c) 3%
d) 7.5%
7) B can earn a return of 18% by investing in equity shares on his own. Now he is
considering a recently announced equity based Mutual Fund Scheme in which initial
expenses are 1% and annual recurring expenses are 2%. How much should be
Mutual Fund earn to provide B, a return of 18%?
a) 18.18%
b) 20.18%
c) 22.18%
d) 21%
8) The following information is extracted from MF, a mutual fund scheme. NAV on
01-11- 2019 is ₹65.78, annualized return is 15%. Distributions of income and
capital gains were ₹0.50 and ₹0.30 per unit in the month. What is the NAV on
30-11-2019?
a) ₹67.50
b) ₹66.14
c) ₹65.80
d) ₹66.96
9) Ms. RUDRA on 1st August, 2023 during initial offer of AB Mutual fund, invested
in 10000 units having face value of ₹ 10 for each unit. On 31st March, 2024,
dividend declared and given by AB Mutual fund was 10%, and Ms. RUDRA found
that her annualized yield was 150%. What is the NAV as on 31.03.2024?
a) ₹ 21
b) ₹ 19
c) ₹ 15
d) None of the above
10) The following particulars relate to a mutual fund scheme:
Sector Investment in shares Index on purchase Index on valuation
(at cost) ₹ lakh date date
IT and ITES 28 1,750 2,950
Infrastructure 15 1,375 2,475
The outstanding number of units is 1.25 lakhs. What will be the net asset value
(NAV) per unit?
a) ₹ 59.36
b) ₹ 55.30
c) ₹ 54.31

52
 d) ₹ 53.29
11) MS BRISTI is considering an investment in a Mutual Fund with a 2% load. As another
alternative, she can also invest in a Bank Deposit paying 8% interest. Her investment
planning period is 4 years. Examine, what should be the annual rate of return on
Mutual Fund so that she prefers the investment in the Fund to the investment in
Bank Deposit.
a) 8-15%
b) 8-55%
c) 8-82%
d) None of the above
12) MS. MOU invested ₹ 50,000 in a mutual fund scheme – SX on 01.04.2022. The
capital gain and divided for the year ₹ 3 per unit which were reinvested at the year
end (31.03.2023). NAV of ₹ 25. Mou had total units of 2,800 as on 31.03.2023.
What was the NAV as on 01.04.2022?
a) ₹10
b) ₹15
c) ₹20
d) None of the above
13) SMO Mutual fuds has a NAV of ₹ 8.60 at the beginning of the year. Meanwhile
fund distributes ₹ 0.80 as dividend and ₹ 0.70 as capital gains. If the funds return
during the year is 26.16%, the the end of year NAV will increase to __________.
a) ₹9.10
b) ₹9.35
c) ₹ 9.40
d) None of the above
14) The following information is available for a mutual fund:
Return 13%
Risk (S.D. i.e. σ) 16%
Beta (β) 0.90
Risk Free Rate 10%
Treynor's Ratio of the mutual fund is:
a) 3.85
b) 4.43
c) 3.33
d) 3.73
15) An investor has invested in a mutual fund when the NAG was Rs. 15.50 per unit.
After 90 days the NAV was Rs. 14.45 per unit. During the period the investor got
a cash dividend of Rs. 1.35 per unit and capital gain distribution of Re. 0.20. The
annualized return based on 360 days year count will be

53
 a) 3.23%
b) 12.92%
c) 0.8075%
d) 16.45%
16) A certain mutual fund has a return of 17% with standard deviation of 3.5% and the
sharpe ratio is 4. The risk free rate is
a) 12.5%
b) 4%
c) 3%
d) 7.5%
17) B can earn a return of 18% by investing in equity shares on his own. Now he is
considering a recently announced equity based Mutual Fund Scheme in which initial
expenses are 1% and annual recurring expenses are 2%. How much should be Mutual
Fund earn to provide B, a return of 18%?
a) 18.18%
b) 20.18%
c) 22.18%
d) 21%
18) The following information is extracted from MF, a mutual fund scheme. NAV on
01- 11-2019 is ₹ 65.78, annualized return is 15%. Distributions of income and
capital gains were ₹ 0.50 and ₹ 0.30 per unit in the month. What is the NAV on
30-11-2019?
a) ₹ 67.50
b) ₹ 66.14
c) ₹ 65.80
d) ₹ 66.96
19) The market price (ex-dividend) of a unit of an open-ended mutual fund scheme was
₹30 at the beginning of the year. A dividend of ₹3 has been paid during the year.
The price of the unit is ₹35 at the year end. The rate of return of the past year
of the unit is
a) 24.32%
b) 26.67%
c) 25.52%
d) 28.56%
20) The important role while establishing the mutual fund scheme is played by the
a) AMC
b) Trustees
c) Sponsors
d) Custodians

54
21) Settlement are done at the instance of the
a) Custodian
b) AMC
c) Trustees
d) Sponsors
22) The functions of the trustees is/are
a) Marketing the mutual fund schemes
b) To seek the RBI approval in case the scheme is open for NRIs
c) Submitting compliance reports to SEBI
d) All of the above
23) Balanced funds have the following characteristics
a) They consist of equity and bonds in equal proportion
b) They have moderate risk component
c) They have above average growth potential
d) None of the above
24) The function(s) of AMC is/are
a) Taking investment decisions and committing the funds in the primary/secondary market
b) Maintaining the records and necessary information systems
c) Inform the trustees of the latest happenings and decisions
d) All of the above
25) Which among the following increases the NAV of a mutual fund scheme?
a) Value of investments
b) Receivables
c) Accrued income
d) All of (a), (b) and (c)
26) Following is/are the advantages of investing in mutual funds
a) Diversified investment
b) Professional management
c) Tax benefits
d) All of (a), (b) and (c)
27) Which of the following benefits is not usually conferred by mutual funds?
a) Diversified investment portfolio
b) Professional stock selection and asset management
c) Tax benefits
d) Assured returns
28) Which of the following is not an advantage of mutual funds?
a) Expertise in selection and timing of investment
b) Economies of scale and lower transaction costs
c) Reinvestment of dividend income possible

55
 d) Limited investment opportunities and hence no need for the investor to have knowledge
on investment management
29) The mutual funds are likely to perform better in the market than a small investor
because they
a) Depend on the technical analysis tools and have the expertise to use them
b) Depend on the fundamental analysis which ensures the long-term performance of the
fund
c) Have access to better information, ability and infrastructure to utilize it
d) None of the above
30) Identify the statement that applies to open-end mutual funds
a) They do not redeem or issue shares
b) Shares of such funds are traded on organized exchanges
c) Their price can’t fall below the NAV
d) Exit from such funds involves selling shares to other investors.
31) Which of the following is an advantage to investors of exchange traded funds (ETFs)
that is not available to investors in open-end mutual funds?
a) ETFs allow investors to invest in broad market indexes as well as international indexes
b) Investors can avoid incurring an expense in the form of a bid ask spread by purchasing
an ETF rather than investing in an open-end mutual fund
c) ETFs offer a potential tax advantage to investors who incur capital gains taxes only
when they sell ETF shares
d) ETF prices cannot deviate from net asset value
32) How much money would you need to purchase 400 shares of a mutual fund with a
NAV of ₹ 55 per share and a 3% load?
a) ₹22,000
b) ₹21,450
c) ₹23,200
d) ₹22,660
33) If a mutual fund NAV is 50 and its expense ratio is 2% what are the total expenses
per share?
a) 2
b) 10
c) 1
d) 5
34) You invested 1,000 in a mutual fund with a 4% load when NAV was 20 per share.
If you sell your shares at a NAV of 20 per share, what is the return of your
investment?
a) 14.8%
b) 15.2%

56
 c) 12.5%
d) 10.8%
35) A mutual fund has a beginning balance of 100 million earns interest of 10 million,
receives dividends of 15 million, and has expenses of 5 million. If 10 million shares
are outstanding, what is the NAV?
a) 10.50
b) 11.00
c) 12.00
d) 12.50
36) A scheme has average weekly net assets of ₹ 324 Cr and has annual expenses of ₹
3.24Cr, it’s expenses ratio is
a) 1%
b) 10%
c) Can’t say
d) Insufficient information
37) If a scheme has 45 Cr units issued and has an FV of ₹10 and NAV is at 11.33,
unit capital (₹ in Cr) would be equal to
a) 500.85
b) 50.85
c) 950.85
d) 450
38) For a scheme to be defined as an equal fund, it must have a minimum
a) 65% in Indian equities
b) 65% in equities
c) 51% Indian equities
d) 35% in Indian equities
39) On average, actively managed mutual funds have an expenses ratio of about
a) 1.5%
b) 2.5%
c) 3%
d) 5%.
40) If opening units 10,000 Units subscribe 3000, Units redeem 1000 then Closing
units?
a) 10,000 units
b) 13,000 units
c) 12,000 units
d) 14,000 units
41) If opening units 1,25,000 Units subscribe 2,00,000, Units redeem 50,000 then
Closing units?

57
 a) 3,25,000 units
b) 2,75,000 units
c) 3,75,000 units
d) 2,50,000 units
42) A mutual fund had average daily assets of ₹500 million in the past year. During the
year, the fund sold ₹60 million of stock X and purchased ₹90 million of stock Y.
What was the fund’s turnover ratio?
a) 12%
b) 15%
c) 18%
d) 30%.
43) A closed-end fund has a portfolio currently worth ₹350 million. The fund has
liabilities of ₹5 million and 17 million units outstanding. What is the net asset value
of the fund?
a) ₹20.28
b) ₹20.29
c) ₹20.59
d) ₹29.17

ANSWER

1 C 21 B 41 B
2 B 22 D 42 A
3 A 23 B 43 B
4 D 24 D 44
5 B 25 D 45
6 C 26 D 46
7 B 27 D 47
8 C 28 D 48
9 B 29 C 49
10 A 30 D 50
11 B 31 B 51
12 C 32 D 52
13 B 33 C 53
14 C 34 B 54
15 B 35 B 55
16 C 36 A 56
17 B 37 B 57
18 C 38 B 58
19 B 39 A 59
20 C 40 C 60

58
1) M buys a call option contract for a premium of Rs. 200. The exercise price is RS.
25 and the current market price of the share is Rs. 22. If the share price after
three months reaches Rs. 30, what is the profit made by M on exercising the
option? A contract is for 100 shares. Ignore transaction charges.
a) Rs. 200
b) Rs. 300
c) Rs. 100
d) Rs. 600
2) A stock is currently sells at ₹350. The put option to sell the stock sells at ₹380
with a premium of ₹20. The time value of option will be
a) ₹10
b) ₹-10
c) ₹20
d) ₹0
3) A call option at a strike price of ₹200 is selling at a premium of ₹24. At what
share price on maturity will it break-even for the buyer of the option?
a) ₹200
b) ₹176
c) ₹224
d) ₹248
4) The spot price of securities of X Ltd. is ₹160. With no dividend and no carrying
cost, compute the theoretical forward price of the securities for 1 month. You
may assume a risk free interest rate of 9% p.a.
a) ₹160
b) ₹162.75
c) ₹161.20
d) ₹159.20
5) When are call options and put options said to be 'in the money' in the futures
market?
a) In call options when strike price is above the price of underlying futures, call option is ‘in
the money’. In put options, when the strike price is below the price of underlying futures
put option ‘is in the money’
b) In call options when strike price is below the price of underlying futures, call option is ‘in
the money’. In put options, when the strike price is above the price of underlying futures
put option ‘is in the money’
c) None of the above
d) Both the above
6) An investor wrote a naked call option. The premium was ₹2.50 per share and the
market price and exercise price of the share are ₹37 and ₹41 respectively.

59
 The contract being for 100 shares, what is the amount of margin under First Method
that is required to be deposited with the clearing house?
a) ₹590
b) ₹250
c) ₹740
d) ₹400
7) An investor buys a call option contract for a premium of ₹200. The exercise
price is ₹20 and the current market price of the share is ₹17. If the share price
after three months reaches ₹25, what is the profit made by the option holder on
exercising the option? Contract is for 100 shares. Ignore the transaction charges.
a) ₹200
b) ₹500
c) ₹300
d) ₹400
8) An investor is bullish about X Ltd. which trades in the spot market at ₹1,150. He
buys two call option contracts with three months (one contract is 100 shares) with
a strike price of ₹1,195 at a premium of ₹35 per share. Three months later, the
share is selling at ₹1,240.
Net profit/loss of the investor on the position will be
a) ₹1,000
b) ₹16,000
c) ₹11,000
d) ₹2,000
9) An Indian Company is planning to invest in the US. The annual rates of inflation are
8% in India and 3% in USA. If the spot rate is currently ₹60.50/$, what spot rate
can you expect after 5 years, assuming the inflation rates will remain the same
over 5 years?
a) ₹88.89
b) ₹54.95
c) ₹76.68
d) ₹76.10
10) A project had an equity beta of 1.3 and was going to be financed by a
combination of 30% debt and 70% equity. Assuming debt-beta to be zero, the
project beta is :
a) 0.81
b) 0.71
c) 0.51
d) 0.91
11) An investor buys a call option contract for a premium of ₹150. The exercise price

60
 is ₹15 and the current market price of the share is ₹12. If the share price after
three months reaches ₹20, what is the profit made by the option holder on
exercising the option? Contract is for 100 shares. Ignore the transaction charges.
a) ₹450
b) ₹350
c) ₹375
d) ₹475
12) CNX Nifty is currently quoting at 9100. Each lot is 75. An investor purchases a
May Futures contract at 9200. He has been asked to pay 5% margin. What amount
of initial margin is he required to deposit? To what level NIFTY futures should in
increase to get a gain of 4%?
a) 9318.4
b) 9218.4
c) 9218.5
d) 9118.4
13) Presently, a company’s share price is ₹120. After 6 months, the price will be either
₹ 150 with a probability of 0.8 or ₹110 with a probability of 0.2. A call option
exists with an exercise price of ₹130. What will be the expected value of call
option at maturity date?
a) ₹20
b) ₹16
c) ₹12
d) ₹10
14) A stock is currently selling at ₹270. The call option to buy the stock at ₹265 costs
₹12. What is the Time Value of the option?
a) ₹5
b) ₹17
c) ₹7
d) None of (A), (B) or (C)
15) The spot Value of Nifty is 4430. An investor bought a one month Nifty 4410 call
option for a premium of ₹12. The option is:
a) In the money
b) At the money
c) Out of the money
d) Insufficient data
16) You are given the following information of a stock:
Strike Price ₹400
Current stock price ₹370
Risk free rate of interest 5%

61
 Theoretical minimum price of a European 6 months put option after six months is
a) ₹9.37
b) ₹20.12
c) ₹30.76
d) ₹20.63
17) MS Ltd. is planning to invest in USA. The annual rates of inflation are 8% in India
and 3% in USA. If spot rate is currently ₹75.50/$, what spot rate can the company
expect after 3 years?
a) ₹65.49
b) ₹79.16
c) ₹87.04
d) ₹72.00
18) M uses 12% as nominal required rate of return to evaluate its new investment
projects. It has recently been decided to protect shareholders interest against loss
of purchasing power due to inflation. If the expected inflation rate is 5%, the real
discount rate will be
a) 6.67%
b) 6%
c) 17.6%
d) 7%
19) A company’s share is currently trading at ₹240. After 6 months, the price will be
either ₹250 with probability of 0.80 or ₹220 with probability 0.20. A European call
option exists with an exercise price of ₹230. The expected value of call option
at maturity date will be
a) ₹10
b) ₹16
c) ₹4
d) ₹14
20) The current price of BCC’s stock is ₹ 1,515 and its is expected that price of the
stock may either go up to the ₹ 1,818 or go down to ₹ 1,212. If strike price of
call option of BCC’s stock is ₹ 1,515 and risk-free rate is 7%, the probability of
decrease in stock price is
a) O.4523
b) 0.3971
c) 0.325
d) None of the above
21) If conclusion and opinions of equity analysts and other experts, based on publicly
available information are reflected in stock prices, then stock market exhibits
a) Weak form of efficiency

62
 b) Semi-strong from of efficiency
c) Inefficiency
d) Both (A) and (B) above
22) MR. KKM, an investor buys a call option contract for a premium of ₹ 150. The
exercise price is ₹ 45 and the current market price of the share is ₹ 42. If the
share price after three months reaches ₹ 50, what is the profit made by the option
holder on exercising the option? Contract is for 100 shares. Ignore the transaction
charges.
a) ₹ 450
b) ₹ 350
c) ₹ 375
d) ₹ 400
23) EYAN Ltd. (EL) has a Beta of 0.80 with BSE 300. Each BSE 300 futures contracts
is worth 100 units. BINUA anticipates a bearish market for the next three months
and has gone short on share of 25000 shares of EL in spot market. EL shares are
traded at ₹ 100.3 3 months’ Future BSE 300 is quoted at 15500. What are the
numbers of BSE 300 futures contracts to be taken by BINUA if she wants to hedge
price risk to the extent of 125%?
a) 300
b) 250
c) 240
d) 200
24) Buying and selling a call and a put option with same strike prices and same expiry
date is called
a) Straddle
b) Box spread
c) Strip
d) Butterfly spread
25) When the trade open on 01.03.2023 the stock price of Roles Ltd., is ₹ 250. It
rises to ₹ 260. The March 2023, call option on Rolex Ltd. started at ₹ 25. It
moved to ₹ 29. The Delta of call option of Rolex Ltd. would be ______.
a) 0.50
b) 0.40
c) 0.35
d) Insufficient information
26) MR. PATOB, a portfolio manager managing a portfolio (Beta 1.50) whose current
market value of ₹ 12 crore. It is expected that the markets are likely to correct
downwards and heading needs to be adopted using NIFTY Index futures. Currently
Index futures are quoted at 8000 with each contract underline s100 units. Mr.

63
 PATOB hedges 100% of his portfolios. What is the number of NIFTY Index
contracts to be sold?
a) 180contracts
b) 200 contracts
c) 225 contracts
d) None of the above
27) The current market price of an equity share of THOMAS LTD., is ₹ 500. Within a
period of 3 months, the maximum and minimum price of it is expected to be ₹600
and ₹ 300 respectively. What should be the value of a 3 months call option under
‘Risk Neutral” method at the strike ret of ₹550 if the risk free rate of interest
to 8% p.a.? [Given e0.02 = 1.0202]
a) ₹ 23.34
b) ₹ 34.31
c) ₹43.31
d) None of the above
28) The stock of ANOS Ltd. (FV ₹ 10) quotes ₹500 on NSE and the 3 months future
price quotes at ₹510. The borrowing rate is given as 15% p.a. what would be the
theoretical price of 3 months ANOS Ltd. future if the expected annual dividend
yield is 25% p.a. payable before expiry?
a) ₹ 540.50
b) ₹ 516.25
c) ₹ 510.50
d) Insufficient data
29) Mr. Shan a trader, is having in its portfolio shares worth ₹ 85 lakh at current price
and cash ₹ 15 lakh. The bets of share portfolio is 1.6. After 3 the price of shares
dropped by 3.20%. If the trader on current date goes for long position on ₹ 100
lakh Nifty future, what is the value of market index after 3 months?
a) ₹ 95 lakh
b) ₹ 96 lakh
c) ₹ 98 lakh
d) None of the above
30) The current market price of an equity share of BANCH Ltd. is ₹ 400 and it is
expected that the stock price after 3 months will be either ₹ 432 or ₹ 360. If the
risk free rate of interest be 12% p.a., what should the value of a ‘3 months’’ call
option under the ‘Risk-neutral’ method at the strike rate of ₹ 388?
[Given. e0.02 = 1.02020. e0.03 = 1.03045]
a) ₹30. 94
b) ₹ 32. 15
c) ₹ 32.98

64
 d) None of the above.
31) The Current Price of ACC's stock is 1,010 and it is expected that price of stock
may either go up to 1,212 or go down to 808. If the stock price of call option of
ACC's stock is 1,010 and Risk-free rate is 6-5%, the probability of decrease in
stock price will be
a) 0-6625
b) 0-5230
c) 0-4680
d) 0-3375
32) Consider a bullish spread option strategy using call option on the stock of GANT
LTd., with 60 exercise price, priced at 6 and a call option with ₹75 exercise price,
priced at 3:50. The current market price of stock of Gant Ltd., is 67. If the price
of the stock is 95 on maturity, the net profit at expiration will be
a) ₹8:50
b) 10:50
c) 12:50
d) 15:00
33) A call option is written for a strike price of 400, with a premium of 50.
a) The holder's maximum loss is ₹ 50
b) The holder's maximum gain is 50
c) The writer's maximum loss is 50
d) The writer's maximum gain is ₹50
34) A stock is currently sells at ₹ 350. The put option to sell the stock sells at ₹ 380
with a premium of ₹ 20. The time value of option will be
a) ₹ 10
b) ₹ -10
c) ₹ 20
d) ₹ 0
35) A mutual fund wants to hedge its portfolio of shares worth ₹ 10 crore using the
NIFTY Index Futures. The contract size is 100 times the index. The index is
currently quoted at 6840. The Beta of the portfolio is 0.8. The beta of the index
may be taken as 1. What is the number of contracts to be traded?
a) 110
b) 116
c) 145
d) 123
36) Which of the following securities is most liquid?
a) Money Market instruments
b) Capital Market instruments

65
 c) Gilt-edged securities
d) Index futures
37) A stock is currently selling at Rs. 270. The call option to buy the stock at Rs. 265
costs Rs. 12. What is the Time Value of the option ?
a) Rs. 5
b) Rs. 17
c) Rs. 7
d) None of (A), (B) or (C)
38) The spot Value of Nifty is 4430. An investor bought a one month Nifty 4410 call
option for a premium of ₹ 12. The option is:
a) In the money
b) At the money
c) Out of the money
d) Insufficient data
39) You are given the following information of a stock: Strike Price ₹ 400
Current stock price ₹ 370
Risk free rate of interest 5%
Theoretical minimum price of a European 6 months’ put option after six months is
a) ₹ 9.37
b) ₹ 20.12
c) ₹ 30.76
d) ₹ 20.63
40) A wants to hedge its portfolio of shares worth ₹ 150 million using the Index futures.
The contract size is 100 times the index. The index is currently quoted at 7500.
The beta of the portfolio is 0.9. Consider the beta of the index as 1. The number
of contracts to be traded is
a) 18000
b) 180
c) 22
d) 200
41) An option’s theoretical value increases by 1.75 if the interest rate is decreased by
1%. Then, 1.75 is
a) The rho of a put option
b) The rho of a call option
c) The theta of call option
d) The theta of a put option
42) Which of the following is not an assumption of Black-Scholes Model?
a) The risk-free rate of interest is known
b) Options can be exercised only at expiration

66
 c) Dividend is paid on the shares
d) No imperfection exists in writing an option
43) When the spot price decreases, the value of a call option
a) is equal to its premium
b) decreases
c) increases
d) does not change
44) Buying a call and put with the same expiry date, on the same stock with a different
strike price is a
a) Strangle
b) Strap
c) Straddle
d) Strip
45) A buyer of forward contract will make profit if
a) Future price is lower than the forward price
b) Future price is higher than the forward price
c) Future price is equal to the forward price
d) Both (A) and (C) of the above
46) Which of the following is/are underlying instrument(s) in a Forward Rate Agreement?
a) Interest rate
b) Exchange rate
c) Inflation rate
d) Both (a) and (c) of the above
47) The market in which the futures price is greater than the spot price is referred to
as
a) Basis
b) Contango
c) Backwardation
d) Reverse Cash and carry arbitrage market
48) Buying and selling call or put option with the same strike price but different
expiration dates is called
a) Long hedge
b) Short hedge
c) Horizontal option spread
d) None of the above.
49) Maintenance margins deposited by an investor in a futures contract is
a) Greater than or equal to the initial margin
b) Less than or equal to the initial margin
c) Greater than the initial margin

67
 d) Less than the initial margin
50) Backwardation occurs when
a) Current spot price = futures price
b) Current spot price < futures
c) Futures price < current spot price
d) Futures price > current spot price
51) American options are those
a) Options which are traded on New York Stock Exchange
b) That can be exercised at any time during a specified period
c) That can be exercised only at the specified period
d) That can be exercised even after the specified period
52) The writer of the option is also known as a
a) Buyer of the option
b) Holder of the option
c) Seller of the option
d) Mediator of the option
53) Covered Call Writing means
a) Buying a stock and a put option and writing a call option on the asset already owned
b) Buying a call option and stock and writing a put option
c) Buying a call option and writing a put option
d) Selling a call option and purchasing a stock
54) Plain vanilla interest rate swaps involved
a) Fixed to fixed rate swap
b) Fixed to floating rate swap
c) Floating to floating rate swap
d) Currency swap
55) An investor writes a three-month put on the stock of an oil company at an exercise
price of ₹275 per share at a premium of ₹34. If the expiration date price is ₹280,
calculate the gain/loss of put writer.
a) ₹5
b) (̶) ₹5
c) ₹34
d) None of the above
56) An investor buys 100 shares of a sugar mill at ₹210 per share and at the same
time writes a September 250 call at a premium of ₹20 per share. If the expiration
date price is ₹280, calculate the net gain/loss.
a) ₹20
b) ₹40
c) ₹60

68
 d) None of the above
57) If the share of BA Ltd. (F. V. ₹10) quotes ₹920 on NSE, and the 3 months futures
price quotes at ₹950, and the borrowing rate is given as 8% and the expected
annual dividend yield is 15% p.a. payable before expiry, then the price of 3-month
BA Ltd. futures would be
a) ₹948.40
b) ₹939.90
c) ₹938.50
d) ₹936.90
58) The stock of ABC Ltd. sells for ₹240. The present value of exercise price and the
value of call option are ₹217.40 and ₹9.60 respectively. What is the value of put
option?
a) ₹16.50
b) ₹22.00
c) ₹17.00
d) ₹18.00
59) In June 2005, a six month Call on Ritz Ltd.’s stock with an exercise price of ₹25
sold for ₹5. The stock price was ₹20. The risk- free interest rate was 5% per
annum. How much would you be willing to pay for a Put Option on Ritz Ltd.’s stock
with same maturity and exercise price? [Given: PVIF (5%, 1/2 year) = 0.9756]
a) ₹6.39
b) ₹9.39
c) ₹12.39
d) None of (A), (B), (C).

69
ANSWER

1 B 21 B 41 A
2 D 22 B 42 C
3 C 23 B 43 B
4 C 24 A 44 A
5 B 25 B 45 B
6 A 26 C 46 A
7 C 27 B 47 B
8 D 28 B 48 C
9 C 29 C 49 D
10 D 30 A 50 C
11 B 31 D 51 B
12 B 32 C 52 C
13 B 33 A 53 D
14 C 34 D 54 B
15 A 35 B 55 C
16 B 36 C 56 C
17 C 37 C 57 D
18 A 38 A 58 C
19 B 39 B 59 B
20 C 40 B 60

70
1) BLC Ltd., a valued customer engaged in import business is in need to remit EURO 1
million to his European exporter. The spot rate of ₹/US$ is ₹65.47/65.57 and that
of US$/EURO is $ 0.8053/0.8057. What rate will a banker quote to BLC Ltd. if
the bank's margin is 0.50%?
a) ₹53.09
b) ₹53.067
c) ₹53.01
d) ₹52.99
2) The current spot rate for the US$ is ₹50. The expected inflation rate is 6 per
cent in India and 2.5 per cent in the US. What will be the expected spot rate of
the US$ a year hence?
a) ₹51.71
b) ₹50.71
c) ₹57.01
d) ₹52.71
3) DEF Ltd. placed ₹52 Crores in overnight call with a foreign bank for a day in
overnight call. The call ruled at 5.65% p.a. What is the amount it would receive
from the foreign bank the next day?
a) ₹52,00,70,493
b) ₹52,00,80,493
c) ₹52,00,80,593
d) ₹52,00,80,693
4) The rates available in the Kolkata market are: ₹/$ Spot 46.75/78; £/$
0.5285/86. If an Indian Importer requires pounds, calculate the rate quoted to
him?
a) ₹88.51/£
b) ₹85.51/£
c) ₹86.51/£
d) ₹87.51/£
5) A Ltd., an export customer who relied on the interbank rate of ₹/$ 46.50/10
requested his banker to purchase a bill for USD 80,000. Calculate the rate to be
quoted to A Ltd., if the banker wants a margin of 0.08%.
a) ₹45.45
b) ₹44.44
c) ₹46.46
d) ₹47.47
6) The spot rate of the US dollar is ₹65.00/USD and the four month forward
rate is 65.90/USD. The annualized premium is
a) 4.2%

72
 b) 5.1%
c) 6.0%
d) 6.4%
7) The 90 day interest rate is 1.85% in USA and 1.35% in the UK and the current
spot exchange rate is $ 1.6/£. The 90-day forward rate is
a) $ 1.607893
b) $ 1.901221
c) $ 1.342132
d) $ 1.652312
8) It is given that ₹/£ quote is ₹94.30 – 95.20 and that ₹/$ quote is 66.25 –
66.45. What would be the $/£ quote?
a) 1.42 :1.44
b) 1.44 :1.42
c) 1.44 :1.52
d) 1.52 :1.44
9) In the inter-bank market, the DM is quoting ₹21.50. If the bank charges
0.125% commission for TT selling, what is the TT selling rate?
a) ₹21.47/DM
b) ₹21.53/DM
c) ₹22.78/DM
d) ₹23.45/DM
10) The spot and 6 months forward rates of US $ in relation to the rupee (₹/$)
are ₹40.9542/41.1255 and ₹41.8550/9650 respectively. What will be the
annualized forward margin (premium with respect to Bid Price)?
a) 4.10%
b) 4.40%
c) 4.50%
d) None of (A), (B) or (C)
11) Your customer requests you to book a sale forward exchange contract for US $ 2
million delivery 3rd month. The quotes are: Spot US $ 1= ₹48.050/0.060; 1month
margin = 0.0850/0.0900; 2 month margin = 0.2650/0.2700; 3 month margin =
0.5300/0.5350. You are required to make an exchange profit of 0.125%. Ignore
telex charges and brokerage.
a) ₹120000
b) ₹230000
c) ₹75000
d) ₹100000
12) The Sterling is trading at ₹1.6100 today. Inflation in UK is 4% and that in USA is
3%. What could be spot rate ($/£) after 2 years?
a) 1.5792

73
 b) 1.5892
c) 1.5992
d) 1.5939
13) Consider the following quotes. Spot (Euro/Pound) = 1.6543/1.6557; Spot
(Pound/NZ$) = 0.2786/0.2800. Calculate the % spread on the Euro/Pound Rate.
a) 0.085%
b) 0.0085%
c) 0.85%
d) 0.00085%
14) The price of Swedish Krones is $ 0.14 today. If it appreciates by 10% today, how
many Krones a dollar will buy tomorrow?
a) 6.49351
b) 4.69351
c) 3.49513
d) 5.64913
15) The following various currency quotes are available from the State Bank of India:
₹/£ 81.31/81.33; £/$ 0.6491/0.6498; $/¥ 0.01098/0.01102. The rate at
which yen (¥) can be purchased with rupees will be:
a) 1.5270
b) 1.5890
c) 0.5824
d) 0.7824
16) The dollar is currently trading at ₹40. If rupee depreciates by 10%, what will
be the spot rate?
a) ₹0.0525
b) ₹0.0552
c) ₹0.0225
d) ₹0.0522
17) BLC Ltd., a valued customer engaged in import business is in need to remit EURO 1
million to his European exporter. The spot rate of ₹/US$ is ₹65.47/65.57 and that
of US$/EURO is $ 0.8053/0.8057. What rate will a banker quote to BLC Ltd. if
the bank's margin is 0.50%?
a) ₹53.09
b) ₹53.067
c) ₹53.01
d) ₹52.99
18) The theoretical forward price of the following security for 6 months is:
Spot Price (Sx) ₹160
Risk free interest rate 9% [Given: e0.045 = 1.046028]
a) ₹166.3645

74
 b) ₹167.4645
c) ₹167.3645
d) ₹166.4656
19) You are a forex dealer in India. Rates of rupee and pound in the international
market are US $0.01386952 and US $1.3181401 respectively. What will be your
direct quote of £ (pound) to your customer.
a) ₹54.6987
b) ₹71.1408
c) ₹95.0386
d) ₹0.0105
20) A Ltd., an export customer requested his banker B to purchase a bill for USD
80,000. Calculate the rate to be quoted to A Ltd. if B wants a margin of 0.08%,
given that the inter bank rate is ₹ $ 71.50/10.
a) ₹71.1569
b) ₹71.0431
c) ₹71.5572
d) ₹71.4428
21) From the following quotes of a bank, determine the rate at which Yen can
be purchased with Rupees.
₹/£ Sterling 75.31 – 33
£ Sterling/Dollar ($) 1.563 – 65
Dollar ($)/Yen (¥) 1.048/52 [per 100 Yen]
a) ₹124.02
b) ₹142.02
c) ₹412.02
d) ₹214.02
22) The spot and 6 months forward rates of US dollar in relation to the rupee (₹/$)
are ₹ 74.532/75.4143 and ₹75.1278/76.2538 respectively. What will be the
annualized forward margin (with respect to Ask price)?
a) 2.42%
b) 1.60%
c) 2.23%
d) 2.31%
23) DAZO Ltd. an export customer who relied on the Inter-bank rate of ₹ / US $
82.45 / 10 requested his banker to purchases a bill US $ 90,000. What is the
rate to be quoted to DAZON Ltd., if the banker wants a margin of 0.20%
(Calculation upto 2 decimal points)
a) ₹ 81.90
b) ₹ 82.15

75
 c) ₹ 82. 29
d) ₹ 82. 80
24) The 90-day interest rate is 1.85% in USA and 1.35% in the UK and the current
spot exchange rate is $ 1.6 / 1 £. The 90-days forward rate is
a) $ 0.62808
b) $ 1.592145
c) $ 1.607893
d) $ 1.342132
25) MR. GORG is a forex dealer in India. Rates of rupee and Euro in the International
market are US $ 0.012572 and US $ 1.117294 respectively. What will be his
direct quote of ∈ (Euro) to his customers? 9calculation upto 3 decimal points).
a) ₹ 85.925
b) ₹88.872
c) ₹89.125
d) ₹90.312
26) MR. BUA is a forex dealer in India. Rates of rupees and Euro in the International
market rate are US $ 0.0124688 and US $ 1.092694 respectively. What will be
his direct quote of (€) euro to his customers?
a) ₹88.91
b) 88.32
c) 87.63
d) 80.90
27) The following various currency quotes are available:
₹/£ 104.0215 / 104.5505
£/$ 0.7155 / 0.7195
₹ / 100 ¥ 0.8695 / 0.8710
The rate at which 100 ¥ can be purchased with rupees will be __________.
a) ₹67.37
b) ₹66.50
c) ₹65.52
d) None of the above
28) LONZA Ltd., an export customer who relied on the inter bank rate of ₹/US$ 80-
50/15 requested his banker to purchase a bill for USS 1,00,000. What is the rate
to be quoted to LONZA Ltd., if the banker wants a margin of 0.10%? (Calculation
rounded off to two decimal point)
a) ₹80-58
b) ₹80-42
c) ₹80-12
d) ₹78-90

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29) The spot rate of the US dollar is ₹ 65.00/USD and the four month forward rate
is 65.90/USD. The annualized premium is
a) 4.2%
b) 5.1%
c) 6.0%
d) 6.4%
30) The following statement is true in the context of rupee-dollar exchange rate with
ri denoting interest rate in India and ru denoting interest rate in the US.
a) Rupee will be at forward discount if ri > ru
b) Rupee will be at forward premium if ru > ri
c) Rupee will be forward premium if ri > ru
d) Rupee will be at par with dollar if ri = ru.
31) The 90 day interest rate is 1.85% in USA and 1.35% in the UK and the current
spot exchange rate is $ 1.6/£. The 90-day forward rate is
a) $ 1.607893
b) $ 1.901221
c) $ 1.342132
d) $ 1.652312
32) BLC Ltd. a valued customer engaged in import business, is in need to remit EURO 1
million to his European exporter. The spot rate of ₹/US$ is ₹ 65.47/65.57 and
that of US$/EURO is $ 0.8053/0.8057. What rate will a banker quote to BLC Ltd.
if the bank's margin is 0.50%?
a) ₹ 53.09
b) ₹ 53.067
c) ₹ 53.01
d) ₹ 52.99
33) An Indian Company is planning to invest in the US. The annual rates of inflation are
8% in India and 3% in USA. If the spot rate is currently ₹ 60.50/$, what spot
rate can you expect after 5 years, assuming the inflation rates will remain the same
over 5 years?
a) ₹ 88.89
b) ₹ 54.95
c) ₹ 76.68
d) ₹ 76.10
34) You are a forex dealer in India. Rates of rupee and pound in the international
market are US $0.01386952 and US $1.3181401 respectively. What will be your
direct quote of £ (pound) to your customer.
a) Rs.54.6987
b) Rs.71.1408

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 c) Rs.95.0386
d) Rs.0.0105
35) A Ltd., an export customer requested his banker B to purchase a bill for USD
80,000. Calculate the rate to be quoted to A Ltd. if B wants a margin of 0.08%,
given that the inter bank rate is Rs./$ 71.50/10.
a) Rs. 71.1569
b) Rs. 71.0431
c) Rs.71.5572
d) Rs.71.4428
36) From the following quotes of a bank, determine the rate at which Yen can be
purchased with Rupees.
₹/£ Sterling 75.31 – 33
£ Sterling/Dollar ($) 1.563 – 65
Dollar ($)/Yen (¥) 1.048/52 [per 100 Yen]
a) ₹ 124.02
b) ₹ 142.02
c) ₹ 412.02
d) ₹ 214.02
37) The spot and 6 months forward rates of US dollar in relation to the rupee (₹/$)
are ₹ 74.532/75.4143 and ₹ 75.1278/76.2538 respectively. What will be the
annualized forward margin (with respect to Ask price)?
a) 2.42%
b) 1.60%
c) 2.23%
d) 2.31%
38) MS Ltd. is planning to invest in USA. The annual rates of inflation are 8% in India
and 3% in USA. If spot rate is currently ₹ 75-50/$, what spot rate can the
company expect after 3 years?
a) ₹ 65.49
b) ₹ 79.16
c) ₹ 87.04
d) ₹ 72.00
39) The following various currency quotes are available: Rs. / 1£ 103.0213/ 103.5404
£ /1 $ 0.7354 / 0.7385
$ /100 ¥ 0. 8720 / 0. 8810
The rate at which 100 Yen (¥) can be purchased with rupees will be
a) Rs. 66.40
b) Rs. 67.03
c) Rs. 66.06
d) Rs 67.37

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40) The following various currency quotes are available: Rs. / 1£ 103.0213/ 103.5404
£ /1 $ 0.7354 / 0.7385
$ /100 ¥ 0. 8720 / 0. 8810
The rate at which 100 Yen (¥) can be purchased with rupees will be
a) Rs. 66.40
b) Rs. 67.03
c) Rs. 66.06
d) Rs 67.37
41) The spot and 3 months’ forward rates of US $ in relation to Rupee (Rs. /1 US $)
are Rs. 75.00 / 75.35 and Rs. 74.60/75.05 respectively. What will be the
annualized forward discount (with respect to ask price)?
a) 1.59%
b) 0.53%
c) 0.40%
d) 2.13%
42) An Indian invested USD 1,00,000 in USA when the US$ was Rs. 72. The investment
has appreciated by 10%, while the US$ has become stronger by 4%. The investment
return in Rupees is
a) 6%
b) 5.58%
c) 14.40%
d) 9.60%
43) An Indian Company is planning to invest in USA. The annual rates of inflation are
8%in India and 3% in USA. If the spot rate is currently Rs. 73.50/1$, what spot
rate can you expect after 2 years, assuming the inflation rates will remain the same
over 2 years?
a) Rs. 66.85
b) Rs. 80.81
c) Rs. 70.09
d) Rs. 77.07
44) X imports goods from USA. X will not do the following as a hedging measure:
a) Buy call options
b) Buy currency forward
c) Buy put options
d) Buy currency futures
45) Which of the following bonds are denominated in Yen?
a) Yankee.
b) Samurai.
c) Shibosai.
d) Both (b) and (d) above.

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46) ______ are underwritten and have a maturity of up to one year.
a) Note issuance facilities
b) Medium-term notes
c) Commercial paper
d) ADRs
47) ________is a private arrangement between lending banks and a borrower.
a) Club loan
b) Multiple component facility
c) Syndicated Euro credit
d) All of the above
48) A Yankee bond is
a) A dollar dominated bond issued for global market by a non-US entity
b) A dollar denominated bond issued in the US by a non-US entity
c) A dollar denominated bond issued by a US resident to a non-US investor
d) A dollar denominated bond issued in US by a US resident
49) Shibosai bond is a bond
a) Denominated in ¥ and issued outside Japan
b) Denominated in a currency other than ¥ and issued in Japan
c) Denominated in Japanese ¥ and issued under private placement in Japan
d) Denominated in ¥ and issued by a overseas corporate to the public in Japan
50) Arbitrageur in a foreign exchange market
a) buys when the currency is low and sells when it is high
b) buys and sells simultaneously the currency with a view to making riskless profit
c) sells the currency when he has a receivable in future
d) buys or sells to take advantage of market imperfections.
51) Indirect rate in foreign exchange market means
a) The rate quoted with the units of home currency kept fixed.
b) The rate quoted with the units of foreign currency kept fixed.
c) The rate quoted in terms of a third currency.
d) None of the above.
52) In foreign exchange markets, ‘American Quotation’ refers to
a) Quotation by a US based bank
b) Quotation in New York foreign exchange market
c) Quotation in which value of foreign currency is expressed for U.S. dollar
d) Quotation in which the value of U.S. dollar is expressed per unit of foreign currency
53) The transaction where the exchange of currencies takes place 2 days after the
date of the contract is known as
a) Ready transaction
b) Value today

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 c) Spot transaction
d) Value tomorrow
54) The buying rate is also known as
a) Bid rate
b) Offer rate
c) Spread
d) Swap
55) Which of the following is not an assumption of perfect capital market?
a) No transaction cost.
b) No taxes.
c) Complete certainty.
d) None of the above.
56) Which of the following is a function of foreign exchange market?
a) Transfer function.
b) Credit function.
c) Hedging function.
d) All of the above.
57) Which of the following is a currency derivative?
a) Currency forward.
b) Currency futures.
c) Currency swaps.
d) All of the above
58) The 6-month forward rate for US dollar against Rupee is quoted as ₹49.50 as
opposed to a spot price of ₹48.85. The forward premium on US dollar is
a) 1.50 %
b) 3.08 %
c) 3.05 %
d) None of the above.
59) An Indian company is planning to invest in US. The US inflation rate is expected to
be 3% and that of India is expected to be 8% annually. If the spot rate currently
is ₹45/US $, what spot rate can you expect after 5 years?
a) ₹56.09/US $
b) ₹57.00/US $
c) ₹57.04/US $
d) ₹57.13/US$
60) The spot and 6 months forward rates of £ in relation to the rupee (₹/£): are
₹77.9542/ 78.1255 and ₹78.8550/9650 respectively. What will be the annualised
forward margin (Premium with respect to Ask Price)?
a) 2.31%
b) 2.15%

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 c) 1.80%
d) 1.59%
61) The United States Dollar is selling in India at ₹45.20. If the interest rate for a
6-months borrowing in India is 10% and the corresponding rate in USA is 4%, what
would be the rate of forward premium/(discount)?
a) 5.93 %
b) 5.88 %
c) (5.17%)
d) (5.52%)
62) The following various currency quotes are available from a leading Indian Bank:
₹/£: ₹75.31/75.33
£/$: £0.6391/0.6398
$/¥: $0.01048/0.01052
The rate at which yen (¥) can be purchased with rupees will be
a) ₹0.5070
b) ₹1.5030
c) ₹1.7230
d) None of the above
63) The sterling is trading at $1.6400 today. Inflation U.K. is 3.8% and that in U.S.A.
is 2.9%. What would be the spot rate ($/£) after 2 years?
a) $1.6117
b) $1.615
c) $1.625
d) None of the above
64) Given, ₹/£ 81.31/81.33
£/$: £0.6491/0.6498
$/¥: $0.01098/0.01102
The rate at which yen (¥) can be purchased with rupees will be:
a) ₹1.5270
b) ₹1.5890
c) ₹0.5824
d) ₹0.7824
65) The dollar is currently trading at ₹40. If Rupee depreciates by 10%, what will be
the spot rate?
a) ₹0525
b) ₹0552
c) ₹0.0225
d) ₹0.0522
66) If the following rates are prevailing: Euro/$: 1.1916/1.1925 and $/£: 1.42/1.47

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 what will be the cross rate between Euro/Pound?
a) £1.6921/1.730
b) £1.7530/1.6921
c) £1.6921/1.1925
d) £1.7530/1.1916
67) Spot (Euro/Pound) = 1.6543/1.6557 Spot (Pound/NZ $) = 0.2786/0.2800 What is
the % Spread on the Euro/ Pound rate?
a) 0.085%
b) 0.805%
c) 0.508%
d) 0.058%
68) The firm producing and selling in domestic market may face following risk when the
economy is opened
a) Transaction risk
b) Translation risk
c) Operating risk
d) Both (a) and (b) above
69) Hedging through ‘currency of invoicing’ results in
a) The exporter covering forex exposure
b) The importer covering forex exposure
c) Both exporter and importer covering forex exposure
d) Either exporter or importer covering forex exposure
70) Which of the following is an internal hedging technique?
a) Leading
b) Netting
c) Swap
d) Both (a) and (b) above
71) Hedge ratio is the
a) Ratio of futures to a spot position that achieves an objective such as minimizing risk
b) Ratio of spot position to futures position that achieves an objective such as minimizing
risk
c) Ratio of spot position to option position that achieves an objective such as minimizing
risk
d) Ratio of basis to a spot position that achieves an objective such as minimizing risk
72) Which of the following is not an appropriate hedging strategy for a likely devaluation
of a currency?
a) Reduce the level of cash.
b) Tighten credit term to decrease account receivables.
c) Reduce borrowing in the currency.
d) Delay account payables.

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73) An Indian company’s cost of production is ₹20/unit while its export price is $ 1/
unit. If the $ appreciates by 10% and the spot rate today is ₹40 per $, what is
the impact of transaction exposure?
a) Increase in profit by ₹4 per unit.
b) Decrease in profit by ₹4 per unit.
c) No change in profit.
d) Insufficient data.
74) The foreign exchange market prices for US dollar ($) against Indian rupees (₹) are
quoted as under:
Buying Selling
Spot ₹65.30 ₹65.50
Three months’ forward ₹66.35 ₹67.20
Calculate the cost of the forward cover.
a) A. 8.15%
b) B. 8.17%
c) C. 8.20%
d) D. 8.22%
75) In September, 2021, X Ltd. assessed the March, 2022 spot rate for pound sterling
at the following rates:
$/Pound 1.30 1.35 1.40 1.45 1.50
Probability 0.15 0.20 0.25 0.20 0.20
What is the expected spot rate for March, 2022?
a) $1.385
b) $1.395
c) $1.405
d) $1.415

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ANSWER

1 A 21 A 41 A 61 B
2 A 22 C 42 C 62 A
3 B 23 C 43 B 63 A
4 A 24 C 44 C 64 C
5 C 25 B 45 D 65 C
6 A 26 C 46 A 66 A
7 A 27 C 47 A 67 A
8 A 28 B 48 B 68 C
9 A 29 A 49 C 69 B
10 B 30 B 50 B 70 D
11 A 31 A 51 A 71 A
12 A 32 A 52 D 72 C
13 A 33 C 53 C 73 A
14 A 34 B 54 A 74 D
15 C 35 C 55 D 75 C
16 C 36 A 56 D 76
17 A 37 C 57 D 77
18 C 38 C 58 B 78
19 C 39 D 59 C 79
20 B 40 D 60 B 80

85
1) M uses 12% as nominal required rate of return to evaluate its new investment
projects. It has recently been decided to protect shareholders’ interest against loss
of purchasing power due to inflation. If the expected inflation rate is 5%, the real
discount rate will be
a) 6.67%
b) 6%
c) 17.6%
d) 7%

ANSWER

1 A
2
3
4
5
6
7
8
9
10

85
1) The following statement is true in the context of rupee-dollar exchange rate
with ri denoting interest rate in India and ru denoting interest rate in the US.
a) Rupee will be at forward discount if ri > ru
b) Rupee will be at forward premium if ru > ri
c) Rupee will be forward premium if ri > ru
d) Rupee will be at par with dollar if ri = ru.
2) Plain Vanilla interest rate swaps involved
a) Fixed to Fixed rate Swap
b) Fixed to Floating rate Swap
c) Floating to Floating rate Swap
d) Currency Swap

ANSWER

1 B
2 B
3
4
5
6
7
8
9
10

86
1. Which one of the following digital financial technologies and technological concepts,
is a type of distributed ledger which provide an order, time stamped and highly
secured record of transactions?
a) Peer to peer technology
b) Enablers
c) Block chain
d) Big data analytics
2. If conclusion and opinions of equity analysts and other experts, based on publicly
available information are reflected in stock prices, then stock market exhibits
a) Weak form of efficiency
b) Semi-strong from of efficiency
c) Inefficiency
d) Both (A) and (B) above
3. Which of the following is/are the benefit(s) of unified payment interface (UPI) to
the merchants?
a) Round the clock availability
b) Single click authentication
c) Safer, secured and innovative
d) In-App Payments (IAP)
4. Which one of the following is not a digital asset?
a) Digital printing
b) Website
c) Stable coin
d) Fintech
5. Which of the following is / are not that component of digital infrastructure and
why?
a) APIs and Integrations
b) Cloud services
c) Stablecoins
d) Internet
6. Which of the following is not a component of Digital Finance Ecosystem?
a) Digital Infrastructure
b) Digital Money
c) Digital Liabilities
d) Digital Financial Services
7. NFT stands for _______.
a) Non-Fungible Token
b) Non-Fuel Token
c) Non-Fractional Token
d) Non-Fundamental Token

87
8. Digital Finance Cube has ____dimensions.
a) Six
b) Four
c) Three
d) Two
9. In India, all payments are regulated by .
a) RBI Act, 1934
b) Banking Regulation Act, 1949
c) Payment and Settlement Systems Act, 2007
d) SBI Act, 1955
10. UPI stands for .
a) United Payment Interface
b) Unified Payment Interface
c) Unique Payment Interface
d) Utility Payment Interface

ANSWER

1 C
2 B
3 D
4 D
5 C
6 C
7 A
8 C
9 C
10 B

88